Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

for the Fiscal Year Ended February 28, 2018

¨

Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

for the Transition Period from to .

EMMIS COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)

INDIANA

(State of incorporation or organization)

0-23264

(Commission file number)

35-1542018

(I.R.S. Employer Identification No.)

ONE EMMIS PLAZA

40 MONUMENT CIRCLE

SUITE 700

INDIANAPOLIS, INDIANA 46204

(Address of principal executive offices)

(317) 266-0100

(Registrant’s Telephone Number, Including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A common stock, $.01 par value of Emmis Communications Corporation

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

ý

Emerging Growth Company

¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý

The aggregate market value of the voting stock held by non-affiliates of the registrant, as of August 31, 2017, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $26,989,000.

The number of shares outstanding of each of Emmis Communications Corporation’s classes of common stock, as of May 4, 2018, was:

Unless the context requires otherwise, all references in this report to “Emmis,” “the Company,” “we,” “our,” “us,” and similar terms refer to Emmis Communications Corporation and its consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS

This report includes or incorporates forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by our use of words such as “intend,” “plan,” “may,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity” and similar expressions, whether in the negative or affirmative. We cannot guarantee that we will achieve these plans, intentions or expectations. All statements regarding our expected financial position, business and financing plans are forward-looking statements.

Actual results or events could differ materially from the plans, intentions or expectations disclosed in the forward-looking statements we make. We have included important facts in various cautionary statements in this report that we believe could cause our actual results to differ materially from forward-looking statements that we make. These include, but are not limited to, the factors described in Part I, Item 1A, “Risk Factors.”

The forward-looking statements do not reflect the potential impact of any future acquisitions, mergers or dispositions. We undertake no obligation to update or revise any forward-looking statements because of new information, future events or otherwise.

We are a diversified media company, principally focused on radio broadcasting. Emmis owns 11 FM and 3 AM radio stations in New York, Indianapolis, and Austin (Emmis has a 50.1% controlling interest in Emmis’ radio stations located there). One of the FM radio stations that Emmis currently owns in New York is operated pursuant to a Local Marketing Agreement (“LMA”) whereby a third party provides the programming for the station and sells all advertising within that programming. On April 30, 2018, we sold our four radio stations in St. Louis. These stations were being operated pursuant to LMAs, which commenced on March 1, 2018 and remained in effect until the stations were sold.

Emmis also developed and licenses TagStation®, a cloud-based software platform that allows a broadcaster to manage album art, meta data and enhanced advertising on its various broadcasts, developed NextRadio®, a smartphone application that marries over-the-air FM radio broadcasts with visual and interactive features on smartphones, and has introduced the Dial ReportTM to give radio advertising buyers and sellers big data analytics derived from a nationwide radio station network, smartphone usage, location-based data, listening data, and demographic and behavioral attributes.

In addition to our radio properties, we also publish Indianapolis Monthly andoperate Digonex Technologies, Inc. (“Digonex”), a dynamic pricing business.

BUSINESS STRATEGY

We are committed to improving the operating results of our core assets while simultaneously seeking future growth opportunities in new businesses. Our strategy is focused on the following operating principles:

Develop unique and compelling content and strong local brands

Most of our established local media brands have achieved and sustained a leading position in their respective market segments over many years. Knowledge of local markets and consistently producing unique and compelling content that meets the needs of our target audiences are critical to our success. As such, we make substantial investments in areas such as market research, data analysis and creative talent to ensure that our content remains relevant, has a meaningful impact on the communities we serve and reinforces the core brand image of each respective property.

Extend the reach and relevance of our local brands through digital platforms

In recent years, we have placed substantial emphasis on enhancing the distribution of our content through digital platforms, such as the Internet and smartphones. We believe these digital platforms offer excellent opportunities to further enhance the relationships we have with our audiences by allowing them to consume and share our content in new ways and providing us with new distribution channels for one-to-one communication with them.

Deliver results to advertisers

Competition for advertising revenue is intense and becoming more so. To remain competitive, we focus on sustaining and growing our audiences, optimizing our pricing strategy and developing innovative marketing programs for our clients that allow them to interact with our audiences in more direct and measurable ways. These programs often include elements such as on-air endorsements, events, contests, special promotions, Internet advertising, email marketing, interactive mobile advertising and online video. Our ability to deploy multi-touchpoint marketing programs allows us to deliver a stronger return-on-investment for our clients while simultaneously generating ancillary revenue streams for our media properties.

Extend sales efforts into new market segments

Given the competitive pressures in many of our “traditional” advertising categories, we have been expanding our network of advertiser relationships into not-for-profits, political advertising, corporate philanthropy, environmental initiatives and government agencies. These efforts primarily focus on the health care and education sectors. We believe our capabilities can address these clients’ under-served needs.

Enhance the efficiency of our operations

We believe it is essential that we operate our businesses as efficiently as possible. We regularly review our business operations and reduce costs or realign resources as necessary. We have also invested in common technology platforms across all of our radio stations to help further standardize our business processes.

We continue to seek innovative ways to combine or enhance our scalable, low cost radio distribution system with digital systems like HD Radio® and wireless broadband, as well as to enhance radio’s future through advances like TagStation, NextRadio and the Dial Report.

Advertising revenues in our radio and magazine businesses remain under heavy pressure by new forms of digital media. We are experiencing steady declines in our advertising revenues, partially offset by the growth we have been able to generate from our events and digital initiatives. In recent years, we have been divesting of radio stations and magazines to repay our indebtedness and reduce our exposure to these businesses. We intend to continue to explore diversification of our business and seek to acquire new businesses that have better prospects for growth where we can apply our sales and marketing expertise to accelerate that growth.

RADIO STATIONS

In the following table, “Market Rank by Revenue” is the ranking of the market revenue size of the principal radio market served by our stations among all radio markets in the United States. Market revenue rankings are from BIA/Kelsey’s Media Access Pro database as of February 14, 2018. “Ranking in Primary Demographic Target” is the ranking of the station within its designated primary demographic target among all radio stations in its market based on the March 2018 Nielsen Audio, Inc. (“Nielsen”) Portable People Meter results. A “t” indicates the station tied with another station for the stated ranking. “Station Audience Share” represents a percentage generally computed by dividing the average number of persons in the primary demographic listening to a particular station during specified time periods by the average number of such persons in the primary demographic for all stations in the market area as determined by Nielsen.

STATION AND MARKET

MARKET

RANK BY

REVENUE

FORMAT

PRIMARY

DEMOGRAPHIC

TARGET AGES

RANKING IN

PRIMARY

DEMOGRAPHIC

TARGET

STATION

AUDIENCE

SHARE

New York, NY 1

2

WQHT-FM

Hip-Hop

18-34

3

7.3

WBLS-FM

Urban Adult Contemporary

25-54

4

5.4

WLIB-AM

Urban Gospel

25-54

34t

0.5

Austin, TX

31

KLBJ-AM

News/Talk

25-54

12

3.3

KLZT-FM

Mexican Regional

18-34

2

7.1

KBPA-FM

Adult Hits

25-54

1

9.1

KLBJ-FM

Album Oriented Rock

25-54

9

4.6

KGSR-FM

Adult Album Alternative

25-54

18t

1.4

KROX-FM

Alternative Rock

18-34

6t

6.1

Indianapolis, IN

37

WFNI-AM

Sports Talk

25-54

17

2.0

WYXB-FM

Soft Adult Contemporary

25-54

2

7.9

WLHK-FM

Country

25-54

6

6.2

WIBC-FM

News/Talk

35-64

7

5.4

1 Our fourth owned station in New York, WEPN-FM, is being operated pursuant to an LMA. Under the terms of the LMA, New York AM Radio LLC, a subsidiary of Disney Enterprises, Inc., provides the programming for the station and sells all advertising within that programming. Emmis continues to own and operate WEPN-FM.

In addition to our other radio broadcasting operations, we own and operate Network Indiana, a radio network that provides news and other programming to approximately 70 affiliated radio stations in Indiana.

NEW TECHNOLOGIES

We believe that the growth of new technologies present not only a challenge, but an opportunity for broadcasters and publishers. The primary challenge is increased competition for the time and attention of our listeners and readers. The opportunity is to further enhance the relationships we already have with our listeners and readers by expanding products and services offered by our radio stations and Indianapolis Monthly and to increase distribution to portable devices like smartphones and tablets.

We believe that to be successful, we must be integrally involved in the communities we serve. We see ourselves as community partners. To that end, each of our radio stations and Indianapolis Monthly participate in many community programs, fundraisers and activities that benefit a wide variety of causes. Charitable organizations that have been the beneficiaries of our contributions, marathons, walkathons, concerts, fairs and festivals include, among others, The Salvation Army, Wish for Heroes, Habitat for Humanity, United Way, Juvenile Diabetes Research Foundation, Make-A-Wish Foundation, March of Dimes, American Red Cross, St. Jude, and the Harlem Chamber of Commerce.

The National Association of Broadcasters Education Foundation (“NABEF”) has honored us with the Hubbard Award, honoring a broadcaster “for extraordinary involvement in serving the community.” Emmis was the second broadcaster to receive this prestigious honor, after the Hubbard family, for which the award is named. The NABEF also recognized Emmis’ WQHT-FM in New York for its outreach after Hurricane Sandy, both for the news coverage it provided and the relief efforts it organized in the weeks after the storm. WIBC-FM was nominated for a national Crystal Award from the National Association of Broadcasters for our efforts in the community in 2014 and in 2016 and WBLS-FM won a national Crystal Award in 2017. Also, our chief executive officer received the 2017 Michael A. Carroll award, a prestigious award given by the Indianapolis Business Journal to a person who has worked to improve the central Indiana community.

INDUSTRY INVOLVEMENT

We have an active leadership role in a wide range of industry organizations. Our senior managers have served in various capacities with industry associations, including as directors of the National Association of Broadcasters, the Radio Advertising Bureau, the Radio Futures Committee, the Nielsen Audio Advisory Council, the Media Financial Management Association, the City and Regional Magazine Association and as founding members of the Magazine Publishers of America. Our chief executive officer has been honored with the National Association of Broadcasters’ “National Radio Award,” was named Radio Ink’s “Radio Executive of the Year,” and was recently named the 2017 recipient of the Broadcasters Foundation of America’s “Lowry Mays Excellence in Broadcasting Award.” Our management and on-air personalities have won numerous industry awards.

COMPETITION

Radio broadcasting stations compete with the other broadcasting stations in their respective market areas, as well as with other advertising media such as newspapers, cable, magazines, outdoor advertising, transit advertising, the Internet, satellite radio, direct marketing and mobile and wireless device marketing. Competition within the broadcasting industry occurs primarily in individual market areas, so that a station in one market (e.g., New York) does not generally compete with stations in other markets (e.g., Austin). In each of our markets, our stations face competition from other stations with substantial financial resources, including stations targeting the same demographic groups. In addition to management experience, factors that are material to competitive position include the station’s rank in its market in terms of the number of listeners, authorized power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other stations in the market area. We attempt to improve our competitive position with programming and promotional campaigns aimed at the demographic groups targeted by our stations. We also seek to improve our position through sales efforts designed to attract advertisers that have done little or no radio advertising by emphasizing the effectiveness of radio advertising in increasing the advertisers’ revenues. The policies and rules of the Federal Communications Commission (the “FCC”) permit certain joint ownership and joint operation of local stations. Most of our radio stations take advantage of these joint arrangements in an effort to lower operating costs and to offer advertisers more attractive rates and services. Although we believe that each of our stations can compete effectively in its market, there can be no assurance that any of our stations will be able to maintain or increase its current audience ratings or advertising revenue market share.

Although the broadcasting industry is highly competitive, barriers to entry exist. The operation of a broadcasting station in the United States requires a license from the FCC. Also, the number of stations that can operate in a given market is limited by the availability of the frequencies that the FCC will license in that market, as well as by the FCC’s multiple ownership rules regulating the number of stations that may be owned or controlled by a single entity, and cross ownership rules which limit the types of media properties in any given market that can be owned by the same person or company.

ADVERTISING SALES

Our stations derive their advertising revenue from local and regional advertising in the marketplaces in which they operate, as well as from the sale of national advertising. Local and most regional sales are made by a station’s or magazine’s sales staff. National sales are made by firms specializing in such sales, which are compensated on a commission-only basis. We believe that the volume of national advertising revenue tends to adjust to shifts in a station’s audience share position more rapidly than does the volume of local and regional advertising revenue. During the year ended February 28, 2018, approximately 17% of our total advertising revenues were derived from national sales, and 83% were derived from local sales.

As of February 28, 2018, Emmis had approximately 380 full-time employees and approximately 240 part-time employees. Approximately 30 employees are represented by unions at our various radio stations. We consider relations with our employees to be good.

INTERNET ADDRESS AND INTERNET ACCESS TO SEC REPORTS

Our Internet address is www.emmis.com. Through our Internet website, free of charge, you may obtain copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports will be available the same day we electronically file such material with, or furnish such material to, the SEC. We have been making such reports available on the same day they are filed during the period covered by this report.

FEDERAL REGULATION OF BROADCASTING

Radio broadcasting in the United States is subject to the jurisdiction of the FCC under the Communications Act of 1934 (the “Communications Act”), as amended in part by the Telecommunications Act of 1996 (the “1996 Act”). Radio broadcasting is prohibited except in accordance with a license issued by the FCC upon a finding that the public interest, convenience and necessity would be served by the grant of such license. The FCC has the power to revoke licenses for, among other things, false statements made in applications or willful or repeated violations of the Communications Act or of FCC rules. In general, the Communications Act provides that the FCC shall allocate broadcast licenses for radio stations in such a manner as will provide a fair, efficient and equitable distribution of service throughout the United States. The FCC determines the operating frequency, location and power of stations; regulates the equipment used by stations; and regulates numerous other areas of radio broadcasting pursuant to rules, regulations and policies adopted under authority of the Communications Act. The Communications Act, among other things, prohibits the assignment of a broadcast license or the transfer of control of an entity holding such a license without the prior approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of media that compete with broadcast stations.

The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. Reference should be made to the Communications Act as well as FCC rules, public notices and rulings for further information concerning the nature and extent of federal regulation of radio stations. Legislation has been introduced from time to time which would amend the Communications Act in various respects, and the FCC from time to time considers new regulations or amendments to its existing regulations. We cannot predict whether any such legislation will be enacted or whether new or amended FCC regulations will be adopted or what their effect would be on Emmis.

LICENSE RENEWAL. Radio stations operate pursuant to broadcast licenses that are ordinarily granted by the FCC for maximum terms of eight years and are subject to renewal upon approval by the FCC. The following table sets forth our FCC license expiration dates in addition to the call letters, license classification, antenna elevation above average terrain (for our FM stations only), power and frequency of all owned stations as of May 10, 2018:

Expiration Date

of License1

Height Above

Average

Terrain (in feet)

Power (in Kilowatts)

Radio Market

Stations

City of License

Frequency

FCC Class

New York, NY

WQHT-FM

New York, NY

97.1

June 2022

B

1,339

6.7

WBLS-FM

New York, NY

107.5

June 2022

B

1,362

4.2

WLIB-AM

New York, NY

1190

June 2022

B

N/A

10 D / 30 N

WEPN-FM

New York, NY

98.7

June 2022

B

1,362

6

Austin, TX

KBPA-FM

San Marcos, TX

103.5

August 2021

C0

1,257

100

KGSR-FM

Cedar Park, TX

93.3

August 2021

C

1,926

100

KLZT-FM

Bastrop, TX

107.1

August 2021

C2

499

49

KLBJ-AM

Austin, TX

590

August 2021

B

N/A

5 D / 1 N

KLBJ-FM

Austin, TX

93.7

August 2021

C

1,050

97

KROX-FM

Buda, TX

101.5

August 2021

C2

847

12.5

Indianapolis, IN

WFNI-AM

Indianapolis, IN

1070

August 2020

B

N/A

50 D / 10 N

WLHK-FM

Shelbyville, IN

97.1

August 2020

B

732

23

WIBC-FM

Indianapolis, IN

93.1

August 2020

B

991

13.5

WYXB-FM

Indianapolis, IN

105.7

August 2020

B

492

50

1 Under the Communications Act, a license expiration date is extended automatically pending action on the renewal application.

Under the Communications Act, at the time an application is filed for renewal of a station license, parties in interest, as well as members of the public, may apprise the FCC of the service the station has provided during the preceding license term and urge the denial of the application. If such a petition to deny presents information from which the FCC concludes (or if the FCC concludes on its own motion) that there is a “substantial and material” question as to whether grant of the renewal application would be in the public interest under applicable rules and policy, the FCC may conduct a hearing on specified issues to determine whether the renewal application should be granted. The Communications Act provides for the grant of a renewal application upon a finding by the FCC that the licensee:

•

has served the public interest, convenience and necessity;

•

has committed no serious violations of the Communications Act or the FCC rules; and

•

has committed no other violations of the Communications Act or the FCC rules which would constitute a pattern of abuse.

If the FCC cannot make such a finding, it may deny the renewal application, and only then may the FCC consider competing applications for the same frequency. In a vast majority of cases, the FCC renews a broadcast license even when petitions to deny have been filed against the renewal application.

REVIEW OF OWNERSHIP RESTRICTIONS. The FCC is required by statute to review all of its broadcast ownership rules on a quadrennial basis (i.e., every four years) and to repeal or modify any of its rules that are no longer “necessary in the public interest.”

Despite several such reviews and appellate remands, the FCC’s rules limiting the number of radio stations that may be commonly owned in a local market have remained largely intact since their initial adoption following the 1996 Act. The FCC’s previous ownership reviews have been subject to litigation. The most recent court decision was issued by the Third Circuit in May 2016 and concerned the FCC’s then-pending 2010 and 2014 reviews. In August 2016, the FCC concluded its 2010 and 2014 reviews, deciding to retain the local radio ownership rule as well as several other media ownership rules, without significant alteration. Various parties appealed the FCC’s August 2016 order, and other parties filed petitions for reconsideration. In November 2017, the FCC issued a decision on reconsideration of the August 2016 Order which, while making only a minor change to the local radio ownership rule (discussed below), eliminated the restrictions on newspaper/broadcast cross-ownership and radio/television cross-ownership and relaxed the local television ownership rule. Several parties have jointly appealed the FCC’s November 2017 order, and their appeal remains pending. The FCC is required to initiate another quadrennial review proceeding in 2018. We cannot predict whether the appeal or forthcoming review proceeding will result in modifications of the ownership rules or the impact (if any) that such modifications would have on our business.

The discussion below reviews the pertinent ownership rules currently in effect as a result of the FCC’s August 2016 and November 2017 orders.

Local Radio Ownership:

The local radio ownership rule limits the number of commercial radio stations that may be owned by one entity in a given radio market based on the number of radio stations in that market:

•

if the market has 45 or more radio stations, one entity may own up to eight stations, not more than five of which may be in the same service (AM or FM);

•

if the market has between 30 and 44 radio stations, one entity may own up to seven stations, not more than four of which may be in the same service;

•

if the market has between 15 and 29 radio stations, one entity may own up to six stations, not more than four of which may be in the same service; and

•

if the market has 14 or fewer radio stations, one entity may own up to five stations, not more than three of which may be in the same service, however one entity may not own more than 50% of the stations in the market.

Each of the markets in which our radio stations are located has at least 30 radio stations.

For purposes of applying these numerical limits, the FCC has also adopted rules with respect to (i) so-called local marketing agreements, or “LMAs,” by which the licensee of one radio station provides programming for another licensee’s radio station in the same market and sells all of the advertising within that programming and (ii) so-called joint sale agreements, or “JSAs,” by which the licensee of one station sells the advertising time on another station in the market. Under these rules, an entity that owns one or more radio stations in a market and programs more than 15% of the broadcast time, or sells more than 15% of the advertising time, on another radio station in the same market pursuant to an LMA or JSA is generally required to count the station toward its media ownership limits even though it does not own the station. As a result, in a market where we own one or more radio stations, we generally cannot provide programming to another station under an LMA, or sell advertising on another station pursuant to a JSA, if we could not acquire that station under the local radio ownership rule. In its August 2016 order, the FCC declined to make other types of agreements such as “shared services agreements” (or “SSAs”) and/or “local news service” agreements, attributable, and adopted a disclosure requirement for SSAs between commercial television stations.

On April 26, 2012, a subsidiary of Emmis entered into an LMA with New York AM Radio, LLC pursuant to which, commencing April 30, 2012, it began purchasing from Emmis the right to provide programming on radio station WEPN-FM, 98.7 FM, New York, NY until August 31, 2024, subject to certain conditions. Disney Enterprises, Inc., the parent company of New York AM Radio, LLC, has guaranteed the obligations under the LMA. Emmis’ subsidiary will retain ownership of the 98.7 FM FCC license during the term of the LMA and received an annual fee of $8.4 million for the first year of the term under the LMA, which fee increases by 3.5% each year thereafter until the LMA’s termination.

Although the FCC’s quadrennial review decisions have not changed the numerical caps under the local radio rule, the FCC adjusted the rule in June 2003 by deciding that both commercial and noncommercial stations could be counted in determining the number of stations in a radio market. The decision also altered the definition of the relevant local market for purposes of the rule. The FCC “grandfathered” existing station “clusters” not in compliance with the numerical caps as calculated pursuant to the new market definition, but provided that they could be sold intact only to small businesses meeting certain requirements. In December 2007, the FCC expanded this policy to allow an owner to sell a grandfathered station cluster to any buyer, so long as the buyer committed to file, within 12 months, an application with the FCC to transfer the excess station(s) to an eligible small business or to a trust for ultimate sale to such an entity. Although the Third Circuit vacated the FCC’s selected definition of small businesses eligible to purchase clusters that exceed the numerical limits in 2011, the FCC reinstated that definition in its August 2016 order. The change in market definition appears to impact the Austin, Texas market, such that we exceed the numerical cap for FM stations. If we chose to sell our Austin cluster of stations and we were not able to obtain a waiver from the current ownership regulations, we would likely have to “spin off” one FM station to a separate buyer or to transfer the cluster to an entity meeting the FCC’s small business definition, and such a spin off would require the consent of our minority partner. In the November 2017 Order, the FCC adopted a presumptive waiver standard for so called “embedded markets” (i.e., smaller markets, as defined by Nielsen Audio, that are included in a larger parent market), and pledged to reexamine its approach to embedded markets in the 2018 quadrennial review.

Cross-Media Ownership:

Prior to the November 2017 Order, the FCC’s rules generally restricted the common ownership of (1) certain combinations of radio and television stations and (2) a daily newspaper and a radio or television station in the same local market. The November 2017 Order, which has, as noted above, been appealed, eliminated these restrictions.

ATTRIBUTION OF OWNERSHIP INTERESTS. In applying its ownership rules, the FCC has developed specific criteria that it uses to determine whether a certain ownership interest or other relationship with an FCC licensee is significant enough to be “attributable” or “cognizable” under its rules. Specifically, among other relationships, certain stockholders, officers and directors of a broadcasting company are deemed to have an attributable interest in the licenses held by that company, such that there would be a violation of the FCC’s rules where the broadcasting company and such a stockholder, officer or director together hold attributable interests in more than the permitted number of stations or a prohibited combination of outlets in the same market. The FCC’s regulations generally deem the following relationships and interests to be attributable for purposes of its ownership restrictions:

•

all officer and director positions in a licensee or its direct/indirect parent(s);

•

voting stock interests of at least 5% (or 20%, if the holder is a passive institutional investor, i.e., a mutual fund, insurance company or bank);

•

any equity interest in a limited partnership or limited liability company where the limited partner or member has not been “insulated” from the media-related activities of the LP or LLC pursuant to specific FCC criteria;

•

equity and/or debt interests which, in the aggregate, exceed 33% of the total asset value of a station or other media entity (the “equity/debt plus policy”), if the interest holder supplies more than 15% of the station’s total weekly programming (usually pursuant to a time brokerage, local marketing or network affiliation agreement) or is a same-market media entity (i.e., broadcast company or newspaper). In December 2007, the FCC increased these limits under certain circumstances where the equity and/or debt interests are in a small business meeting certain requirements. Although the Third Circuit vacated the FCC’s selected definition of small businesses eligible to take advantage of these increased limits in 2011, the FCC reinstated that definition in its August 2016 order.

To assess whether a voting stock interest in a direct or indirect parent corporation of a broadcast licensee is attributable, the FCC uses a “multiplier” analysis in which non-controlling voting stock interests are deemed proportionally reduced at each non-controlling link in a multi-corporation ownership chain.

Under existing FCC policy, in the case of corporations having a “single majority shareholder,” the interests of minority shareholders are generally not deemed attributable. Because Jeffrey H. Smulyan’s voting interest in the Company currently exceeds 50%, this exemption appears to apply to the Company. Elimination of the exemption is, however, under consideration by the FCC. If the exemption is eliminated, or if Mr. Smulyan’s voting interest falls to or below 50%, then the interests of any minority shareholders that meet or exceed the thresholds described above would become attributable and would be combined with the Company’s interests for purposes of determining compliance with FCC ownership rules.

Ownership-rule conflicts arising as a result of aggregating the media interests of the Company and its attributable shareholders could require divestitures by either the Company or the affected shareholders. Any such conflicts could result in Emmis being unable to obtain FCC consents necessary for future acquisitions. Conversely, Emmis’ media interests could operate to restrict other media investments by shareholders having or acquiring an interest in Emmis.

ALIEN OWNERSHIP. Under the Communications Act, no FCC license may be held by a corporation if more than one-fifth of its capital stock is owned or voted by aliens or their representatives, a foreign government or representative thereof, or an entity organized under the laws of a foreign country (collectively, “Non-U.S. Persons”). Furthermore, the Communications Act provides that no FCC license may be granted to an entity directly or indirectly controlled by another entity of which more than one-fourth of its capital stock is owned or voted by Non-U.S. Persons if the FCC finds that the public interest will be served by the denial of such license. The FCC staff had interpreted this provision to require an affirmative public interest finding to permit the grant or holding of a license, and had made such a finding only in limited circumstances. In November 2013 the FCC clarified that it would accept requests to allow foreign investment above 25% in broadcast holding companies, and that it would evaluate those requests on a case-by-case basis to determine whether the requesting party had provided a sufficient public interest showing. In September 2016, the FCC adopted rules to simplify and streamline the process for requesting authority to exceed the 25% indirect foreign ownership limit in broadcast licensees and revised the methodology that publicly traded broadcasters must use to assess their compliance with the foreign ownership restrictions. The foregoing restrictions on alien ownership apply in modified form to other types of business organizations, including partnerships and limited liability companies. In addition, an LMA with a foreign owned company is not prohibited as long as the non-foreign holder of the FCC license continues to control and operate the station. Our Second Amended and Restated Articles of Incorporation and Second Amended and Restated Code of By-Laws authorize the Board of Directors to prohibit such restricted alien ownership, voting or transfer of capital stock as would cause Emmis to violate the Communications Act or FCC regulations.

ASSIGNMENTS AND TRANSFERS OF CONTROL. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors, including compliance with the various rules limiting common ownership of media properties, the “character” of the assignee or transferee and those persons holding attributable interests therein and compliance with the Communications Act’s limitations on alien ownership as well as other statutory and regulatory requirements. When evaluating an assignment or transfer of control application, the FCC is prohibited from considering whether the public interest might be served by an assignment of the broadcast license or transfer of control of the licensee to a party other than the assignee or transferee specified in the application.

PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to serve the “public interest.” Beginning in the late 1970s, the FCC gradually relaxed or eliminated many of the more formalized procedures it had developed to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license. However, licensees are still required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness.

Federal law prohibits the broadcast of obscene material at any time and the broadcast of indecent material during specified time periods; these prohibitions are subject to enforcement by the FCC and carry fines of up to $325,000 per violation. The company has received, and may receive in the future, letters of inquiry or other notifications concerning alleged violations of the indecency rules at certain of its stations. We cannot predict the outcome of any indecency complaint proceeding or investigation or the extent or nature of future FCC enforcement actions.

The FCC’s indecency rules have also been the subject of litigation. In July 2010, the Second Circuit held the FCC’s indecency standards to be unconstitutionally vague in violation of the First Amendment. The Second Circuit later vacated the agency decision at issue in another appeal based on its earlier decision. The FCC challenged these rulings in the Supreme Court. In June 2012 the Supreme Court vacated the Second Circuit’s decision, finding that the FCC had failed to provide adequate notice regarding the contours of its indecency policy with respect to the broadcasts at issue in the underlying proceedings, but leaving open the possibility that the agency might be able to enforce the prohibition on broadcast indecency in the future. The Third Circuit issued a decision vacating another FCC indecency ruling in November 2011, and the Supreme Court denied the FCC’s request for review of this decision. It is not clear how the FCC will apply these judicial decisions to outstanding complaints, including any that may involve Emmis stations, or how they will impact future FCC policies in this area. The FCC has also solicited public comment on whether, and if so how, to revise its indecency enforcement policies, in a proceeding that remains pending.

Federal law also imposes sponsorship identification (or “payola”) requirements, which mandate the disclosure of information concerning programming that is paid for by third parties. The company has received, and may receive in the future, letters of inquiry or other notifications concerning alleged violations of the sponsorship identification rules at certain of its stations. We cannot predict the outcome of any sponsorship identification complaint proceeding or investigation or the extent or nature of future FCC enforcement actions.

Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identification, equal employment opportunities, contest and lottery advertisements, and technical operations, including limits on radio frequency radiation.

Failure to observe FCC rules and policies can result in the imposition of various sanctions, including monetary fines, the grant of “short-term” (less than the maximum term) license renewals or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license.

ADDITIONAL DEVELOPMENTS AND PROPOSED CHANGES. The FCC has adopted rules implementing a low power FM (“LPFM”) service, and approximately 800 such stations are in operation. In November 2007, the FCC adopted rules that, among other things, enhance LPFM’s interference protection from subsequently-authorized full-service stations. Congress then passed legislation eliminating certain minimum distance separation requirements between full-power and LPFM stations, thereby reducing the interference protection afforded to FM stations. As required by the legislation, the FCC in January 2012 submitted a report to Congress indicating that the results of a statutorily mandated economic study indicated that, on the whole, LPFM stations do not currently have, and in the future are unlikely to have, a demonstrable economic impact on full-service commercial FM radio stations. In March 2012, the FCC modified its rules to permit the processing of additional LPFM applications and to implement the legislative requirements regarding interference protection. The FCC opened a window for the filing of applications seeking authority to construct or make major changes to LPFM facilities which extended from October 15 through November 14, 2013, and in which it received more than 2,800 LPFM applications. The FCC continues to process the applications submitted during the window and, although to date there have been very few, if any, instances of LPFM stations interfering with full-power radio stations, we cannot predict whether any LPFM stations will actually interfere with the coverage of our radio stations in the future.

In June 2009, the FCC adopted rules that allow an AM radio station to use currently authorized FM translator stations to retransmit the AM station’s programming within the AM station’s authorized service area. In October 2015, the FCC issued an Order that adopted a two-stage process for AM radio stations to acquire additional FM translators, which began in early 2016 and is expected to conclude in 2018. The FCC has also adopted certain changes to its rules that govern AM radio stations, and has sought comment on additional changes to those rules, which remain pending.

The FCC also previously authorized the launch and operation of a satellite digital audio radio service (“SDARS”) system. In July 2008, the two original SDARS companies-Sirius Satellite Radio, Inc. and XM Satellite Radio Holdings, Inc.-merged into a new company called Sirius XM, which currently provides nationwide programming service. Sirius XM also offers channels that provide local traffic and weather information for major cities.

In October 2002, the FCC issued an order selecting a technical standard for terrestrial digital audio broadcasting (“DAB,” also known as high definition radio or “HD Radio®”). The in-band, on-channel (“IBOC”) technology chosen by the agency allows AM and FM radio broadcasters to introduce digital operations and permits existing stations to operate on their current frequencies in either full analog mode, full digital mode, or a combination of both (at reduced power). In March 2005, the FCC announced that, pending adoption of final rules, it would allow stations on an interim basis to broadcast multiple digital channels. In March 2007, the FCC adopted service rules for HD Radio®. Significantly, the FCC decided to allow FM stations to broadcast digital multicast streams without seeking prior FCC authority, to provide datacasting services, to lease excess digital capacity to third parties, and to offer subscription services pursuant to requests for experimental authority. Under the new rules, FM stations may operate in the “extended hybrid mode,” which provides more flexibility for multicasting and datacasting services; and may use separate analog and digital antennas without seeking prior FCC authority. FM translators, FM boosters and low power FM stations may also broadcast digitally where feasible, and AM stations may now operate digitally during nighttime hours. The new rules mandate that broadcasters offering digital service provide at least one free over-the-air signal comparable in quality to their analog signal and that they simulcast their analog programming on their main digital stream, and prohibit broadcasters from operating exclusively in digital. The FCC declined either to set any mandatory deadline for broadcasters to convert to digital operations or to impose additional public interest obligations (beyond those that already apply to analog broadcasters) on digital broadcasters. The FCC did, however, adopt a Further Notice of Proposed Rulemaking seeking comment on (among other things) whether additional public interest obligations are necessary, including consideration of a requirement that radio stations report their public service programming in detail on a standardized form and post that form and all other contents of their public inspection files on the station’s website. The FCC subsequently imposed an online public file requirement on television stations and, in January 2016, extended that requirement to radio stations. In January 2010, the FCC revised its DAB service rules to allow FM DAB stations to increase the permitted power levels of DAB transmissions. In September 2008, shortly after approving the Sirius-XM merger, the FCC sought comment on whether it should mandate the inclusion of HD Radio® features in satellite radio receivers. That proceeding remains pending, and we cannot predict its outcome or the impact that a decision might have on our business.

In order to broadcast musical compositions or to stream them over the Internet, Emmis must pay royalties to copyright owners of musical compositions (typically, songwriters and publishers). These copyright owners often rely on organizations known as performing rights organizations, which negotiate licenses with copyright users for the public performance of their compositions, collect royalties, and distribute them to copyright owners. The three major performing rights organizations, from which Emmis

has licenses and to which Emmis pays royalties, are the American Society of Composers, Authors, and Publishers, Broadcast Music, Inc., and SESAC, Inc. These rates are set periodically, are often negotiated by organizations acting on behalf of broadcasters, and may increase in the future. It also is possible that songwriters or publishers may disassociate with these performing rights organizations, or that additional such organizations could emerge in the future. In 2013 a new performing rights organization, named Global Music Rights (“GMR”), was formed. GMR has obtained the rights to certain high-value copyrights and is seeking to negotiate individual licensing agreements with radio stations for songs within its repertoire. GMR and the Radio Music License Committee, Inc. (“RMLC”), which negotiates music licensing fees with performance rights organizations on behalf of many radio stations, have initiated antitrust litigation against one another, which remains pending. In addition, there has been litigation concerning whether the consent decrees between the Department of Justice (“DOJ”) and major performance rights organizations require so-called “full-work” licenses (which would allow a license-holder to play all of the works in a performance rights organization’s repertoire), most recently resulting in a ruling by a federal appeals court that they do not. If a significant number of musical composition copyright owners withdraw from the established performing rights organizations, if new performing rights organizations form to license compositions that are not already licensed, or if the consent decrees between the DOJ and certain major performance rights organizations are eliminated, Emmis’ royalty rates or negotiation costs could increase. Emmis’ royalty rates or negotiation costs could also change as a result of GMR/RMLC litigation or the resolution of the full-work licensing issue.

In order to stream music over the Internet, Emmis must also obtain licenses and pay royalties to the owners of copyrights in sound recordings (typically, artists and record companies). These royalties are in addition to royalties for Internet streaming that must also be paid to performance rights organizations. The Copyright Royalty Board (“CRB”) recently completed its proceeding to set rates for the 2016-2020 license period. The CRB set a rate during this period for performances by non-subscription noninteractive services of 0.17 cent per listener per song, and a rate for noninteractive subscription services of 0.22 cent per listener per song, both of which are subject to changes that mirror changes in the Consumer Price Index. The CRB’s 2016-2020 rates represent a decrease from the 2015 CRB rates applicable to broadcasters and other webcasters, but the determination has been appealed.

In addition, lawsuits have been filed under various state laws challenging the right of digital audio transmission services and broadcasters to publicly perform or reproduce sound recordings fixed prior to February 15, 1972 (“pre-1972 sound recordings”) without a license. Such sound recordings currently are exempt from federal copyright protection. The 1976 Copyright Act provides that pre-1972 sound recordings may be the subject of state copyright protection until 2067. As a result, there are various protections of pre-1972 sound recordings in place across various states, and the scope of protections and of exceptions and limitations to those protections varies from state to state. Moreover, the existence or scope of any public performance right in pre-1972 sound recordings is unclear. Courts applying the laws of several states have denied protection to pre-1972 sound recordings, and the issue remains pending in appeals of certain of those rulings and in separate litigation elsewhere. Legislation has also been introduced in Congress that would preempt state law claims for copyright violations related to pre-1972 sound recordings. If legislative efforts do not succeed, and if the courts find that there are public performance rights in pre-1972 recordings and the decisions are interpreted to apply to radio broadcasting or Internet streaming, this could impede Emmis’ ability to broadcast and/or stream pre-1972 sound recordings and/or increase its costs.

Legislation also has previously been introduced in Congress that would require the payment of performance royalties to artists, musicians, or record companies whose music is played on terrestrial radio stations, ending a long-standing copyright law exception. If enacted, such legislation could have an adverse impact on the cost of music programming.

In December 2007, the FCC initiated a proceeding to consider imposing requirements intended to promote broadcasters’ service to their local communities, including (i) requiring stations to establish a “community advisory board,” (ii) reinstating a requirement that a station’s main studio be in its community of license and (iii) imposing local programming “guidelines” that, if not met, would result in additional scrutiny of a station’s license renewal application. While many broadcasters have opposed these proposals, we cannot predict how the FCC will resolve the issues.

Congress and the FCC also have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of additional matters that could, directly or indirectly, affect the operation, ownership and profitability of our broadcast stations, result in the loss of audience share and advertising revenues for our broadcast stations and/or affect our ability to acquire additional broadcast stations or finance such acquisitions. Such matters include, but are not limited to:

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proposals to impose spectrum use or other fees on FCC licensees;

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proposals to repeal or modify some or all of the FCC’s multiple ownership rules and/or policies;

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proposals to change rules relating to political broadcasting;

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technical and frequency allocation matters;

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AM stereo broadcasting;

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proposals to modify service and technical rules for digital radio, including possible additional public interest requirements for terrestrial digital audio broadcasters;

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proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages;

changes to broadcast technical requirements related to the implementation of SDARS;

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proposals to modify broadcasters’ public interest obligations;

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proposals to limit the tax deductibility of advertising expenses by advertisers; and

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proposals to regulate violence and hate speech in broadcasts.

We cannot predict whether any proposed changes will be adopted, what other matters might be considered in the future, or what impact, if any, the implementation of any of these proposals or changes might have on our business.

The foregoing is only a brief summary of certain provisions of the Communications Act and of specific FCC regulations. Reference should be made to the Communications Act as well as FCC regulations, public notices and rulings for further information concerning the nature and extent of federal regulation of broadcast stations.

ITEM 1A. RISK FACTORS.

The risk factors listed below, in addition to those set forth elsewhere in this report, could affect the business and future results of the Company. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

Risks Related to our Business

Our results of operations could be negatively impacted by weak economic conditions and instability in financial markets.

We believe that advertising is a discretionary business expense. Spending on advertising tends to decline disproportionately during an economic recession or downturn as compared to other types of business spending. Consequently, a downturn in the United States economy generally has an adverse effect on our advertising revenue and, therefore, our results of operations. A recession or downturn in the economy of any individual geographic market, particularly our largest market of New York, could have a significant adverse effect on us.

Even in the absence of a general recession or downturn in the economy, an individual business sector (such as the automotive industry) that tends to spend more on advertising than other sectors might be forced to reduce its advertising expenditures if that sector experiences a downturn. If that sector’s spending represents a significant portion of our advertising revenues, any reduction in its advertising expenditures may affect our revenue.

Radio revenues in the markets in which we operate have been challenged and may remain so.

Radio revenues in the markets in which we operate have lagged the growth of the general United States economy. Our market revenues, as measured by the accounting firm Miller Kaplan Arase LLP (“Miller Kaplan”), during the years ended February 2016, 2017 and 2018 were down 1.5%, up 1.7%, and down 0.8% respectively. During this same period, the U.S. Bureau of Economic Analysis reports that U.S. current-dollar gross domestic product growth has been 3% to 4% each year. Our results of operations could be negatively impacted if radio revenue performance in the markets in which we operate continues to lag general United States economic growth.

We may lose audience share and advertising revenue to competing radio stations or other types of media.

We operate in highly competitive industries. Our radio stations compete for audiences and advertising revenue with other radio stations and station groups, as well as with other media. Shifts in population, demographics, audience tastes, consumer use of technology and forms of media and other factors beyond our control could cause us to lose market share. Any adverse change in a particular market, or adverse change in the relative market positions of the stations located in a particular market, could have a material adverse effect on our revenue or ratings, could require increased promotion or other expenses in that market, and could adversely affect our revenue in other markets. Other radio broadcasting companies may enter the markets in which we operate or may operate in the future. These companies may be larger and have more financial resources than we have. Our radio stations may not be able to maintain or increase their current audience ratings and advertising revenue in the face of such competition.

We routinely conduct market research to review the competitive position of our stations in their respective markets. If we determine that a station could improve its operating performance by serving a different demographic within its market, we may change the format of that station. Our competitors may respond to our actions by more aggressive promotions of their stations or by replacing the format we vacate, limiting our options if we do not achieve expected results with our new format.

From time to time, other stations may change their format or programming, a new station may adopt a format to compete directly with our stations for audiences and advertisers, or stations might engage in aggressive promotional campaigns. These tactics could result in lower ratings and advertising revenue or increased promotion and other expenses and, consequently,

lower earnings and cash flow for us. Any failure by us to respond, or to respond as quickly as our competitors, could also have an adverse effect on our business and financial performance.

Because of the competitive factors we face, we cannot assure investors that we will be able to maintain or increase our current audience ratings and advertising revenue.

Our radio operations are heavily concentrated in the New York market.

Our radio operations in New York, including the LMA fee we receive from a subsidiary of Disney, accounted for approximately 40% of our radio revenues in fiscal 2018. Our results from operations can be materially affected by decreased ratings for our stations in New York, which could result in revenue declines for us in that market.

Our radio operations lack the scale of some of our competitors, especially in the New York market.

We currently own four stations in New York, one of which is being programmed by another broadcaster under the terms of an LMA. Some of our competitors in this market have larger clusters of radio stations. Our competitors may be able to leverage their market share to extract a greater percentage of available advertising revenues in this market and may be able to realize operating efficiencies by programming multiple stations in the market. Also, given our reliance on urban formats in New York, our results from operations can be materially affected by additional urban format competition by our competitors.

Future operation of our business may require significant additional capital.

The continued development, growth and operation of our businesses may require substantial capital. In particular, our emerging technologies, including TagStation/NextRadio and Digonex are not currently profitable and need additional capital to fund their operations. Furthermore, any acquisitions may require large amounts of capital. We intend to fund our growth, including our emerging technologies and acquisitions, if any, with cash generated from operations and asset sales, borrowings under our Credit Agreement dated June 10, 2014 (the “2014 Credit Agreement”), as amended, and proceeds from future issuances of debt and equity, both public and private. Currently, the 2014 Credit Agreement substantially limits our ability to make acquisitions. Our ability to raise additional debt or equity financing is subject to market conditions, our financial condition and other factors. If we cannot obtain financing on acceptable terms when needed, our results of operations, ability to fund our emerging technologies, and financial condition could be adversely impacted.

We must respond to the rapid changes in technology, services and standards that characterize our industry in order to remain competitive, and changes in technology may increase the risk of material intellectual property infringement claims.

The radio broadcasting industry is subject to rapid technological changes, evolving industry standards and the emergence of competition from new technologies and services. We cannot assure that we will have the resources to acquire new technologies or to introduce new services that could compete with these new technologies. Various media technologies and services that have been developed or introduced include:

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satellite-delivered digital audio radio service, which has resulted in subscriber-based satellite radio services with numerous niche formats;

HD Radio®, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services; and

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low-power FM radio, which could result in additional FM radio broadcast outlets, including additional low-power FM radio signals authorized in December 2010 under the Local Community Radio Act.

New media has resulted in fragmentation in the advertising market, but we cannot predict the impact that additional competition arising from new technologies may have on the radio broadcasting industry or on our financial condition and results of operations. We also cannot ensure that our investments in HD Radio®, TagStation®, NextRadio®, the Dial ReportTM and other technologies will produce the desired returns.

A number of automakers are introducing more advanced, interactive dashboard technology including the introduction of technologies like Apple CarPlay and Google Android Auto that enable vehicle entertainment systems to more easily interface with a consumer’s smartphone and include alternative audio entertainment options.

Programmatic buying, which enables an advertiser to purchase advertising inventory through an exchange or other service and bypass the traditional personal sales relationship, has become widely adopted in the purchase of digital advertising and is an emerging trend in the radio industry. We cannot predict the impact programmatic buying may have on the radio industry or our financial condition and results of operations.

Additionally, technological advancements in the operation of radio stations and related businesses have increased the number of patent and other intellectual property infringement claims brought against broadcasters, including Emmis. While Emmis has not historically been subject to material patent and other intellectual property claims and takes certain steps to limit the likelihood of, and exposure to, such claims, no assurance can be given that material claims will not be asserted in the future.

Our business depends heavily on maintaining our licenses with the FCC. We could be prevented from operating a radio station if we fail to maintain its license.

The radio broadcasting industry is subject to extensive and changing regulation. The Communications Act and FCC rules and policies require FCC approval for transfers of control and assignments of FCC licenses. The filing of petitions or complaints against FCC licensees could result in the FCC delaying the grant of, or refusing to grant, its consent to the assignment of licenses to or from an FCC licensee or the transfer of control of an FCC licensee. In certain circumstances, the Communications Act and FCC rules and policies will operate to impose limitations on alien ownership and voting of our common stock. There can be no assurance that there will be no changes in the current regulatory scheme, the imposition of additional regulations or the creation of new regulatory agencies, which changes could restrict or curtail our ability to acquire, operate and dispose of stations or, in general, to compete profitably with other operators of radio and other media properties.

Each of our radio stations operates pursuant to one or more licenses issued by the FCC. Under FCC rules, radio licenses are granted for a term of eight years. Our licenses expire at various times through June 2022. Although we will apply to renew these licenses, third parties may challenge our renewal applications. While we are not aware of facts or circumstances that would prevent us from having our current licenses renewed, there can be no assurance that the licenses will be renewed or that renewals will not include conditions or qualifications that could adversely affect our business and operations. Failure to obtain the renewal of any of our broadcast licenses may have a material adverse effect on our business and operations. In addition, if we or any of our officers, directors or significant stockholders materially violates the FCC’s rules and regulations or the Communications Act, is convicted of a felony or is found to have engaged in unlawful anticompetitive conduct or fraud upon another government agency, the FCC may, in response to a petition from a third party or on its own initiative, in its discretion, commence a proceeding to impose sanctions upon us which could involve the imposition of monetary fines, the revocation of our broadcast licenses or other sanctions. If the FCC were to issue an order denying a license renewal application or revoking a license, we would be required to cease operating the applicable radio station only after we had exhausted all rights to administrative and judicial review without success.

We disseminate large amounts of content to the public. An ill-conceived or mis-timed on-air statement or social media post could have a material adverse effect on our business.

The FCC’s rules prohibit the broadcast of obscene material at any time and prohibit indecent material between the hours of 6 a.m. and 10 p.m. Broadcasters risk violating the prohibition on the broadcast of indecent material because of the FCC’s broad definition of such material, coupled with the spontaneity of live programming.

Congress has dramatically increased the penalties for broadcasting obscene, indecent or profane programming and broadcasters can potentially face license revocation, renewal or qualification proceedings in the event that they broadcast indecent material. In addition, the FCC’s heightened focus on indecency, against the broadcast industry generally, may encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations. As a result of these developments, we have implemented certain measures that are designed to reduce the risk of broadcasting indecent material in violation of the FCC’s rules. These and other future modifications to our programming in an effort to reduce the risk of indecency violations could have an adverse effect on our competitive position.

Even statements or social media posts that do not violate the FCC’s indecency rules could offend our audiences and advertisers or infringe the rights of third parties, resulting in a decline in ratings, a loss in revenues, a challenge to our broadcast licenses, or extended litigation. While we maintain insurance covering some of these risks, others are effectively uninsurable and could have a material adverse effect on our results from operations and financial condition.

Any changes in current FCC ownership regulations may negatively impact our ability to compete or otherwise harm our business operations.

The FCC is required to review all of its broadcast ownership rules every four years and to repeal or modify any of its rules that are no longer “necessary in the public interest.” We cannot predict the impact of these reviews on our business or their effect on our ability to acquire broadcast stations in the future or to continue to own and freely transfer stations that we have already acquired.

In 2003, we acquired a controlling interest in five FM stations and one AM station in the Austin, Texas market. Under ownership regulations released after the date of our acquisition, it appears that we would be permitted to own or control only four FM stations in the Austin market (ownership of one AM station would continue to be allowed). The new rules do not require divestiture of existing non-conforming station combinations, but do provide that such clusters may be transferred only to defined small business entities or to buyers that commit to selling any excess stations to such entities within one year.

Consequently, if we wish to sell our interest in the Austin stations, we will need to obtain a waiver from the current ownership regulations, or we will need to either sell to an entity that meets those FCC requirements or exclude at least one FM station from the transaction, and a station divestiture would require the consent of our minority partner.

Changes in current Federal regulations could adversely affect our business operations.

Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, affect the profitability of our broadcast stations. In particular, Congress is considering a revocation of radio’s exemption from paying royalties to performing artists for use of their recordings (radio already pays a royalty to songwriters). A requirement to pay additional royalties could have an adverse effect on our business operations and financial performance.

Our business strategy and our ability to operate profitably depend on the continued services of our key employees, the loss of whom could have a material adverse effect on our business.

Our ability to maintain our competitive position depends to a significant extent on the efforts and abilities of our senior management team and certain key employees. Although our executive officers are typically under employment agreements, their managerial, technical and other services would be difficult to replace if we lose the services of one or more of them or other key personnel. Our business could be seriously harmed if one of them decides to join a competitor or otherwise competes directly or indirectly against us.

Our radio stations employ or independently contract with several on-air personalities and hosts of syndicated radio programs with large and loyal audiences in their respective broadcast areas. These on-air personalities are sometimes significantly responsible for the ranking of a station and, thus, the ability of the station to sell advertising. Such on-air personalities or other key individuals may not remain with our radio stations and we may not retain their audiences, which could affect our competitive position.

We have reported significant net losses in our consolidated statement of operations in the past as a result of recording noncash impairment charges, mostly related to FCC licenses and goodwill. During the years ended February 28 (29), 2016, 2017 and 2018, we incurred impairment losses of $9.5 million, $9.8 million, and $0.3 million, respectively. As of February 28, 2018, our FCC licenses and goodwill comprise 74% of our total assets. If events occur or circumstances change, or even if the declining radio valuation trend continues, that would reduce the fair value of the FCC licenses and goodwill below the amount reflected on the balance sheet, we may be required to recognize impairment charges, which may be material, in future periods.

We may fail to realize any benefits and incur unanticipated losses related to any acquisition.

The success of our acquisitions will depend, in part, on our ability to successfully integrate the acquired business. It is possible that the integration process could result in the loss of key employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers and employees or to achieve the anticipated benefits of the acquisition. Successful integration may also be hampered by any differences between the operations and corporate culture of the two organizations. If we experience difficulties with the integration process, the anticipated benefits of the acquisition may not be realized fully, or at all, or may take longer to realize than expected. Finally, any cost savings that are realized may be offset by losses in revenues from the acquired business.

We may fail to consummate dispositions or complete them in a timely manner.

We regularly review our portfolio of assets and periodically dispose of assets when we believe it is appropriate to do so. We are exploring strategic alternatives with respect to WLIB-AM in New York, as well as land in northwest Indianapolis that is currently being used as a tower site, and may explore strategic alternatives with respect to other assets we currently own. We cannot ensure that an announced transaction will be consummated for any asset we may contemplate divesting.

Our operating results have been and may again be adversely affected by acts of war, terrorism and natural catastrophes.

Acts of war and terrorism against the United States, and the country’s response to such acts, may negatively affect the U.S. advertising market, which could cause our advertising revenues to decline due to advertising cancellations, delays or defaults in payment for advertising time, and other factors. In addition, these events may have other negative effects on our business, the nature and duration of which we cannot predict.

For example, after the September 11, 2001 terrorist attacks, we decided that the public interest would be best served by the presentation of continuous commercial-free coverage of the unfolding events on our stations. This temporary policy had a material adverse effect on our advertising revenues and operating results for the month of September 2001. Future events like those of September 11, 2001 may cause us to adopt similar policies, which could have a material adverse effect on our advertising revenues and operating results.

Additionally, the attacks on the World Trade Center on September 11, 2001 resulted in the destruction of the transmitter facilities that were located there. Although we had no transmitter facilities located at the World Trade Center, broadcasters that had facilities located in the destroyed buildings experienced temporary disruptions in their ability to broadcast. Since we tend to locate transmission facilities for stations serving urban areas on tall buildings or other significant structures, such as the Empire State Building in New York, further terrorist attacks or other disasters could cause similar disruptions in our broadcasts in the areas affected. If these disruptions occur, we may not be able to locate adequate replacement facilities in a cost-effective or timely manner or at all. Failure to remedy disruptions caused by terrorist attacks or other disasters and any resulting degradation in signal coverage could have a material adverse effect on our business and results of operations.

Similarly, hurricanes, floods, tornadoes, earthquakes, wild fires and other natural disasters can have a material adverse effect on our operations in any given market. While we generally carry insurance covering such catastrophes, we cannot be sure that the proceeds from such insurance will be sufficient to offset the costs of rebuilding or repairing our property or the lost income.

We have significant obligations relating to our current operating leases.

In February 2016, the Financial Accounting Standards Board released Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”). This update requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

As of February 28, 2018, we had operating lease commitments of approximately $43.7 million. These leases are classified as operating leases and disclosed in Note 11 to our accompanying consolidated financial statements. Currently, operating leases are classified as off-balance sheet transactions and only the current year operating lease expense is accounted for in the consolidated statements of operations as rent expense. All of our leases classified as operating leases require us to make certain estimates at the inception of the lease in order to determine whether the lease is operating or capital. ASU 2016-02 requires that substantially all operating leases be recognized as assets (the right to use the leased property) and liabilities (the present value of future lease payments). This guidance will be effective for the Company as of March 1, 2019 and requires a modified retrospective implementation. When adopted, ASU 2016-02 will result in an increase in the assets and liabilities reflected on our consolidated balance sheets.

Our business is dependent upon the proper functioning of our internal business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.

The proper functioning of our internal business processes and information systems is critical to the efficient operation and management of our business. If these information technology systems fail or are interrupted, our operations may be adversely affected and operating results could be harmed. Our business processes and information systems need to be sufficiently scalable to adapt to the size of our business and may require modifications or upgrades that expose us to a number of operational risks. Our information technology systems, and those of third party providers, may also be vulnerable to damage or disruption caused by circumstances beyond our control. These include catastrophic events, power anomalies or outages, natural disasters, computer system or network failures, viruses or malware, physical or electronic intrusions, unauthorized access and cyber-attacks. Any material disruption, malfunction or similar challenges with our business processes or information systems, or disruptions or challenges relating to the transition to new processes, systems or providers, could have a material adverse effect on our financial position, results of operations and cash flows.

Because of our holding company structure, we depend on our subsidiaries for cash flow, and our access to this cash flow is restricted.

We operate as a holding company. All of our radio stations and other assets are currently owned and operated by our subsidiaries. Emmis Operating Company (“EOC”), our wholly-owned subsidiary, is the borrower under our credit facility. All of our station and other operating subsidiaries and FCC license subsidiaries are subsidiaries of EOC. Further, we guarantee EOC’s obligations under the credit facility and substantially all of EOC’s assets are pledged as collateral under the credit facility. As a holding company, our only source of cash to pay our obligations, including corporate overhead expenses, is cash distributed from our subsidiaries. We currently expect that the majority of the net earnings and cash flow of our subsidiaries will be retained and used by them in their operations, including servicing their debt obligations. Even if our subsidiaries elect to make distributions to us, we cannot be assured that applicable state law and contractual restrictions, including covenants contained in our credit facility, would permit such dividends or distributions.

We have a significant amount of indebtedness. At February 28, 2018, our total indebtedness was $142.4 million, consisting of $78.5 million under our 2014 Credit Agreement, $53.9 million of 98.7FM nonrecourse debt and $10.0 million of other nonrecourse debt. The Company expects that proceeds from the LMA in New York with a subsidiary of Disney will be sufficient to pay all debt service related to the 98.7FM nonrecourse debt. Our substantial indebtedness could have important consequences to investors. For example, it could:

•

make it more difficult for us to satisfy our obligations with respect to our indebtedness;

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

•

result in higher interest expense in the event of increases in interest rates because some of our debt is at variable rates of interest;

•

limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;

•

place us at a competitive disadvantage compared to some of our competitors that have less debt; and

•

limit, along with the financial and other restrictive covenants in our 2014 Credit Agreement, our ability to borrow additional funds or make acquisitions.

The revolving credit commitment under our 2014 Credit Agreement matures on August 31, 2018, and the term loans under our 2014 Credit Agreement mature on April 18, 2019. Our ability to repay or refinance amounts outstanding under our 2014 Credit Agreement depends on many factors beyond our control.

We used a substantial portion of the net proceeds from the April 30, 2018 sale of our four radio stations in St. Louis, Missouri to repay amounts outstanding under our revolver and term loans. Subsequent to these repayments, we have no amounts outstanding under our revolver and $28.0 million of outstanding term loans. However, we may need to refinance some or all of the amounts outstanding under our 2014 Credit Agreement prior to their respective maturities. While we have been successful in refinancing our credit facility debt in the past, we cannot assure investors that we will be successful in the future.

If we cannot continue to comply with the financial covenants in our debt instruments, or obtain waivers or other relief from our lenders, we may default, which could result in loss of our sources of liquidity and acceleration of our indebtedness.

We have a substantial amount of indebtedness, and the instruments governing such indebtedness contain restrictive financial covenants. Our ability to comply with the covenants in our debt instruments will depend upon our future performance and various other factors, such as business, competitive, technological, legislative and regulatory factors, some of which are beyond our control. We may not be able to maintain compliance with all of these covenants. In that event, we would need to seek an amendment to our debt instruments, or would need to refinance our debt instruments. There can be no assurance that we can obtain future amendments or waivers of our debt instruments, or refinance our debt instruments and, even if so, it is likely that such relief would only last for a specified period, potentially necessitating additional amendments, waivers or refinancings in the future. In the event that we do not maintain compliance with the covenants under our debt instruments, the lenders could declare an event of default, subject to applicable notice and cure provisions, resulting in a material adverse impact on our financial position. Upon the occurrence of an event of default under our debt instruments, the lenders could elect to declare all amounts outstanding under our 2014 Credit Agreement to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. Our lenders under our 2014 Credit Agreement have taken security interests in substantially all of our consolidated assets. If the lenders accelerate the repayment of borrowings, we may be forced to liquidate certain assets to repay all or part of our debt instruments, and we cannot be assured that sufficient assets will remain for us to continue our business operations after we have paid all of the borrowings under our debt instruments. Our ability to liquidate assets is affected by the regulatory restrictions associated with radio stations, including FCC licensing, which may make the market for these assets less liquid and increase the chances that these assets will be liquidated at a significant loss.

Our 98.7FM debt is not subject to these risks to the same degree as the debt under our 2014 Credit Agreement, as certain rights and payments under the 98.7FM LMA have been assigned to the holder of the 98.7FM debt, the 98.7FM debt is generally nonrecourse to the rest of Emmis, and the LMA payments have been guaranteed by Disney Enterprises, Inc.

The terms of our indebtedness and the indebtedness of our direct and indirect subsidiaries may restrict our current and future operations, particularly our ability to respond to changes in market conditions or to take some actions.

Our debt instruments impose significant operating and financial restrictions on us. These restrictions significantly limit or prohibit, among other things, our ability and the ability of our subsidiaries to incur additional indebtedness, issue preferred stock, incur liens, pay dividends, enter into asset purchase or sale transactions, merge or consolidate with another company, dispose of all or substantially all of our assets or make certain other payments or investments.

These restrictions currently limit our ability to grow our business through acquisitions and could limit our ability to respond to market conditions or meet extraordinary capital needs. They also could restrict our corporate activities in other ways. These restrictions could adversely affect our ability to finance our future operations or capital needs.

To service our indebtedness and other obligations, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our 2014 Credit Agreement, as amended, requires us to pay periodic interest payments. Our ability to make payments on our indebtedness and to fund capital expenditures will depend on our ability to generate cash in the future. This ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our businesses might not generate sufficient cash flow from operations. We might not be able to complete future offerings, and future borrowings might not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

Risks Related to our Common Stock:

One shareholder controls a majority of the voting power of our common stock, and his interest may conflict with those of other shareholders.

As of May 4, 2018, our Chairman of the Board of Directors and Chief Executive Officer, Jeffrey H. Smulyan, beneficially owned shares representing approximately 52.6% of the outstanding combined voting power of all classes of our common stock, as calculated pursuant to Rule 13d-3 of the Exchange Act. He therefore is in a position to exercise substantial influence over the outcome of most matters submitted to a vote of our shareholders, including the election of a majority of our directors.

The difficulties associated with any attempt to gain control of our company could adversely affect the price of our Class A common stock.

Jeffrey H. Smulyan has substantial influence over the decision as to whether a change in control will occur for our company. There are also provisions contained in our articles of incorporation, by-laws and Indiana law that could make it more difficult for a third party to acquire control of Emmis. In addition, FCC approval for transfers of control of FCC licenses and assignments of FCC licenses are required. These restrictions and limitations could adversely affect the trading price of our Class A common stock.

Our stock price and trading volume could be volatile.

Our Class A common stock is currently listed on the National Association of Securities Dealers Automated Quotation (“Nasdaq”) Global Select Market under the symbol “EMMS.” The market price of our Class A common stock and our trading volume have been subject to fluctuations since our initial public offering in 1994. Accordingly, the market price of our Class A common stock could experience volatility, regardless of our operating performance.

Our Class A common stock may cease to be listed on the Nasdaq Global Select Market.

Our common stock is currently listed on the Nasdaq Global Select Market under the symbol “EMMS.” We may not be able to meet the continued listing requirements of the Nasdaq Global Select Market, which require, among other things, a minimum closing price of our common stock and a minimum market capitalization. In the past, we have received written deficiency notices from The Nasdaq Stock Market advising us that the closing bid price of our Class A common stock did not meet the continued listing requirements pursuant to NASDAQ Listing Rule 5450(a)(1). In each of these instances, we were able to satisfy the requirements for continued listing. If we are unable to satisfy the requirements of the Nasdaq Global Select Market for continued listing, our common stock would be subject to delisting from that market, and we might or might not be eligible to list our shares on another Nasdaq market.

A delisting of our Class A common stock from the Nasdaq Global Select Market could negatively impact us by, among other things, reducing the liquidity and market price of our common stock. There can be no assurance that we will be able to comply with the Minimum Bid Price Rule, or any other requirement in the future.

The types of properties required to support each of our radio stations include offices, studios and transmitter/antenna sites. We typically lease our studio and office space, although we do own some of our facilities. Most of our studio and office space leases contain lease terms with expiration dates of five to fifteen years. A station’s studios are generally housed with its offices in downtown or business districts. We generally consider our facilities to be suitable and of adequate size for our current and intended purposes. We own several of our main transmitter/antenna sites and lease the remainder of our transmitter/antenna sites with lease terms that generally range from five to twenty years. The transmitter/antenna site for each station is generally located so as to provide maximum market coverage, consistent with the station’s FCC license. In general, we do not anticipate difficulties in renewing facility or transmitter/antenna site leases or in leasing additional space or sites if required. We have approximately $43.7 million in aggregate minimum rental commitments under real estate leases. Many of these leases contain escalation clauses such as defined contractual increases or cost-of-living adjustments.

Our principal executive offices are located at 40 Monument Circle, Suite 700, Indianapolis, Indiana 46204, in approximately 91,500 square feet of owned office space which is shared by our Indianapolis radio stations and our Indianapolis Monthly publication. This property is subject to a mortgage under our 2014 Credit Agreement.

We own substantially all of our other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by our stations are generally in good condition, although opportunities to upgrade facilities are periodically reviewed.

ITEM 3. LEGAL PROCEEDINGS.

The Company is a party to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, there are no legal proceedings pending against the Company likely to have a material adverse effect on the Company.

Emmis filed suit against Illinois National Insurance Company (“INIC”) in 2015 related to INIC’s decision to not cover Emmis’ defense costs under Emmis’ directors and officers insurance policy in a lawsuit related to the Company’s preferred stock in which Emmis was the defendant (the “Prior Litigation”). On March 21, 2018, Emmis was granted summary judgment entitling it to coverage of its defense costs in the Prior Litigation, but the amount Emmis should recover has not yet been determined and all final decisions by the U.S. District Court are subject to appeal. Emmis incurred approximately $4.1 million of costs defending the prior litigation and was subject to a $1.0 million deductible. Emmis is seeking to recover these costs plus applicable accrued interest less the applicable deductible from INIC. However, Emmis cannot reasonably estimate the amount or timing of such recovery.

In connection with Emmis’ sale of four magazines to Hour Media on February 28, 2017, ten percent of the purchase price, or $0.65 million, was placed in escrow to secure Emmis’ post-closing indemnification obligations in the asset purchase agreement and was scheduled to be released six months after the closing of the transaction. Hour Media has claimed that Emmis breached the asset purchase agreement and will not consent to the release of the $0.65 million in escrow. Emmis filed a lawsuit against Hour Media for breach of the asset purchase agreement and Hour Media has filed a counterclaim against Emmis. Emmis believes that substantially all of Hour Media’s claims are without merit.

EXECUTIVE OFFICERS OF THE REGISTRANT

Listed below is certain information about the executive officers of Emmis or its affiliates who are not directors or nominees to be directors.

Mr. Brenner was appointed an executive officer of Emmis in July 2016 and has served as President - TagStation / NextRadio since March 2016. Previously, Mr. Brenner served as Senior Vice President and Chief Technology Officer from March 2009 to February 2016. Mr. Brenner joined Emmis in 1998.

Mr. Enright was appointed Executive Vice President, General Counsel and Secretary in March 2009. Previously, Mr. Enright served as Senior Vice President, Associate General Counsel and Secretary of Emmis from September 2006 to February 2009 and as Vice President, Associate General Counsel and Assistant Secretary from the date he joined Emmis in October 1998, adding the office of Secretary in 2002.

Mr. Hornaday was appointed Executive Vice President, Chief Financial Officer and Treasurer in August 2015. Previously, Mr. Hornaday served as Senior Vice President - Finance and Treasurer from December 2008 to July 2015. Mr. Hornaday joined Emmis in 1999.

Mr. Loewen was appointed President – Publishing Division and Chief Strategy Officer in March 2010. Mr. Loewen has also served as President of Digonex since our acquisition of a controlling interest in June 2014. Previously, Mr. Loewen served as Chief Strategy Officer from February 2007 to February 2010. Prior to joining Emmis in February 2007, Mr. Loewen served as Vice President of Digital Media and Strategy for The Toronto Star.

Emmis’ Class A common stock is traded in the over-the-counter market and is quoted on the Nasdaq Global Select Market under the symbol EMMS. There is no established public trading market for Emmis’ Class B common stock or Class C common stock. On July 8, 2016, we effected a one-for-four reverse stock split for all classes of our common stock.

The following table sets forth the high and low sales prices of the Class A common stock for the periods indicated. Sales prices have been adjusted for all periods presented to reflect the impact of the reverse stock split.

QUARTER ENDED

HIGH

LOW

May 2016

$

2.76

$

1.92

August 2016

$

4.33

$

2.20

November 2016

$

4.17

$

3.22

February 2017

$

3.68

$

2.76

May 2017

$

3.87

$

2.14

August 2017

$

3.42

$

2.55

November 2017

$

3.69

$

2.44

February 2018

$

4.21

$

2.83

HOLDERS

At May 4, 2018, there were 2,860 record holders of the Class A common stock, and there was one record holder of the Class B common stock.

DIVIDENDS

Emmis currently intends to retain future earnings for use in its business and has no plans to pay any dividends on shares of its common stock in the foreseeable future. Emmis’ 2014 Credit Agreement sets forth certain restrictions on our ability to pay dividends. See Note 5 to the accompanying consolidated financial statements for more discussion of the 2014 Credit Agreement.

SHARE REPURCHASES

During the three-month period ended February 28, 2018, there was withholding of shares of common stock upon vesting of restricted stock to cover withholding tax obligations. The following table provides information on our repurchases during the three months ended February 28, 2018:

Period

(a)

Total Number

of Shares

Purchased

(b)

Average Price

Paid Per

Share

(c)

Total Number of

Shares

Purchased as

Part of Publicly

Announced

Plans or

Programs

(d)

Maximum

Approximate

Dollar Value of

Shares That May

Yet Be Purchased

Under the Plans or

Programs (in 000’s)

Class A Common Stock

December 1, 2017 - December 31, 2017

—

$

—

—

$

—

January 1, 2018 - January 31, 2018

21,294

$

3.11

—

$

—

February 1, 2018 - February 28, 2018

13,120

$

4.17

—

$

—

34,414

—

ITEM 6. SELECTED FINANCIAL DATA.

As a smaller reporting company, we are not required to provide this information.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

GENERAL

The following discussion pertains to Emmis Communications Corporation (“ECC”) and its subsidiaries (collectively, “Emmis” or the “Company”).

We principally own and operate radio properties located in the United States. Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales represent approximately two-thirds of our consolidated revenues. These rates are in large part based on our entities’ ability to attract audiences/subscribers in demographic groups targeted by their advertisers. The Nielsen Company generally measures radio station ratings weekly for markets measured by the Portable People Meter™, which includes all of our radio stations. Because audience ratings in a station’s local market are critical to the station’s financial success, our strategy is to use market research, advertising and promotion to attract and retain audiences in each station’s chosen demographic target group.

Our revenues vary throughout the year. As is typical in the broadcasting industry, our revenues and operating income are usually lowest in our fourth fiscal quarter.

In addition to the sale of advertising time for cash, stations typically exchange advertising time for goods or services, which can be used by the station in its business operations. These barter transactions are recorded at the estimated fair value of the product or service received. We generally confine the use of such trade transactions to promotional items or services for which we would otherwise have paid cash. In addition, it is our general policy not to preempt advertising spots paid for in cash with advertising spots paid for in trade.

The following table summarizes the sources of our revenues for the past three years. The category “Non Traditional” principally consists of ticket sales and sponsorships of events our stations and magazines conduct in their local markets. The category “Other” includes, among other items, revenues related to our TagStation and Digonex businesses, network revenues and barter. During the three year period ended February 28, 2018, we sold all of or city and regional magazines with the exception of Indianapolis Monthly. We also sold our radio stations in Terre Haute and Los Angeles. These sales impact the comparability of net revenues in fiscal 2016, 2017 and 2018. We sold our four radio stations in St. Louis on April 30, 2018. The sale of our radio stations in St. Louis does not impact the comparability of the periods presented below, but will impact the comparability of results in future periods.

Years ended February 28 (29),

2016

% of Total

2017

% of Total

2018

% of Total

Net revenues:

Local

$

130,486

56.4

%

$

121,841

56.8

%

$

81,949

55.2

%

National

26,994

11.7

%

21,706

10.1

%

16,261

11.0

%

Political

661

0.3

%

2,163

1.0

%

457

0.3

%

Publication Sales

5,612

2.4

%

4,193

2.0

%

412

0.3

%

Non Traditional

25,683

11.1

%

22,936

10.7

%

17,280

11.6

%

Interactive

13,223

5.7

%

14,737

6.9

%

10,058

6.8

%

LMA Fees

10,331

4.5

%

10,331

4.8

%

10,752

7.2

%

Other

18,443

7.9

%

16,661

7.7

%

11,318

7.6

%

Total net revenues

$

231,433

$

214,568

$

148,487

A significant portion of our expenses varies in connection with changes in revenue. These variable expenses primarily relate to costs in our sales department, such as salaries, commissions and bad debt. Our costs that do not vary as much in relation to revenue are mostly in our programming and general and administrative departments, such as talent costs, syndicated programming fees, utilities, office expenses and salaries. Lastly, our costs that are highly discretionary are costs in our marketing and promotions department, which we primarily incur to maintain and/or increase our audience and market share.

The U.S. radio industry is a mature industry and its growth rate has stalled. Management believes this is principally the result of two factors: (1) new media, such as various media distributed via the Internet, telecommunication companies and cable interconnects, as well as social networks, have gained advertising share against radio and other traditional media and created a proliferation of advertising inventory and (2) the fragmentation of the radio audience and time spent listening caused by satellite radio, audio streaming services and podcasts has led some investors and advertisers to conclude that the effectiveness of radio advertising has diminished.

The Company and the radio industry are leading several initiatives to address these issues. The radio industry is working aggressively to increase the number of smartphones and other wireless devices that contain an enabled FM tuner. Most smartphones currently sold in the United States contain an FM tuner. However, most wireless carriers in the United States have not historically permitted the FM tuner to receive the free over-the-air local radio stations it was designed to receive. Furthermore, in many countries outside the United States, enabled FM tuners are made available to smartphone consumers; consequently, radio listening increases. Activating FM as a feature on smartphones sold in the United States has the potential to increase radio listening and improve the perception of the radio industry while offering wireless network providers the benefits of a proven emergency notification system, reduced network congestion from audio streaming services, and a host of new revenue generating applications. Emmis is at the leading edge of this initiative and has developed TagStation®, a cloud-based software platform that allows a broadcaster to manage album art, meta data and enhanced advertising on its various broadcasts, and NextRadio®, a smartphone application that marries over-the-air FM radio broadcasts with visual and interactive features, as an industry solution to enrich the user experience of listening to free over-the-air radio broadcasts on their FM-enabled smartphones and other wireless devices. We have also introduced the Dial ReportTM, which provides advertisers and other interested parties rich data about the usage and consumption of radio, including the behaviors of radio listeners.

On August 9, 2013, NextRadio LLC, a wholly-owned subsidiary of Emmis, entered into an agreement with Sprint whereby Sprint agreed to pre-load the Company’s NextRadiosmartphone application on a minimum of 30 million FM-enabled wireless devices on the Sprint wireless network over a three-year period. In return, NextRadio LLC agreed to serve as a conduit for the radio industry to pay Sprint $15 million per year in equal quarterly installments over the three year term and to share with Sprint certain revenue generated by the NextRadio application. NextRadio LLC collected money from the radio industry and forwarded it to Sprint. During the year ended February 2016, Emmis’ funding of its share of NextRadio’s payment to Sprint was $0.4 million. This amount is included in station operating expenses in the accompanying consolidated statements of operations. Emmis did not guarantee NextRadio LLC’s performance under this agreement and Sprint did not have recourse to any Emmis related entity other than NextRadio LLC. Additionally, the agreement does not limit the ability of NextRadio LLC to place the NextRadio application on FM-enabled devices on other wireless networks. Through February 28, 2018, the NextRadio application has not generated a material amount of revenue.

From the inception of NextRadio LLC’s agreement with Sprint through December 7, 2016, NextRadio LLC had remitted to Sprint approximately $33.2 million. Effective December 8, 2016, NextRadio LLC and Sprint entered into an amendment of their original agreement. The amendment called for NextRadio LLC to make installment payments totaling $6.0 million through March 15, 2017, which have been paid. In exchange, Sprint agreed to forgive the remaining $5.8 million that it was due under the original agreement, and in return receive a higher share of certain revenue generated by the NextRadio application. NextRadio LLC received a loan of $4.0 million for the sole purpose of fulfilling the payment obligations to Sprint under the amendment. The loan will be repaid out of proceeds from sales of enhanced advertising through the NextRadio application. During the years ended February 2017 and 2018, NextRadio LLC received $3.4 million and $0.6 million, respectively, under the loan, which was promptly remitted to Sprint and included in station operating expenses in the accompanying consolidated statement of operations. In addition, during the year ended February 2018, Emmis funded $0.3 million of the final payment to Sprint. This amount is also included in station operating expenses in the accompanying consolidated statement of operations.

On July 27, 2015, NextRadio LLC entered into an agreement with AT&T whereby AT&T agreed to include FM chip activation in its Android device specifications to wireless device manufacturers. In exchange, AT&T receives a share of certain revenue generated by the NextRadio application. This agreement was subsequently assigned to TagStation LLC (the parent entity of NextRadio LLC and owner of the TagStation and NextRadio applications). On September 9, 2016, TagStation LLC entered into an agreement with T-Mobile whereby T-Mobile agreed to include FM chip activation in its Android device specifications to wireless device manufacturers. In exchange, T-Mobile also receives a share of certain revenue generated by the NextRadio application. TagStation LLC has been working directly with numerous device manufacturers to accelerate the availability of NextRadio to consumers. BLU Products, an American mobile phone manufacturer, has chosen to make NextRadio the native FM tuner on its Android smartphones. Alcatel and LG entered into similar arrangements for NextRadio. The Samsung S8 and S9 family of smartphones are FM-enabled and NextRadio-compatible across all major U.S. wireless networks. TagStation LLC and the radio industry continue to work with other leading United States wireless network providers,

device manufacturers, regulators and legislators to cause FM tuners to be enabled in all smartphones. Furthermore, NextRadio has incorporated streaming capabilities into its application so listeners can enjoy NextRadio regardless of whether or not the FM chip in their phone has been enabled.

Emmis granted the U.S. radio industry (as defined in the funding agreements) a call option on substantially all of the assets used in the NextRadio and TagStation businesses in the United States. The call option may be exercised in August 2019 by paying Emmis a purchase price equal to the greater of (i) the appraised fair market value of the NextRadio and TagStation businesses, or (ii) two times Emmis’ cumulative investments in the development of the businesses through August 2015. If the call option is exercised, the businesses will continue to be subject to the operating limitations applicable today, and no radio operator will be permitted to own more than 30% of the NextRadio and TagStation businesses.

Along with the rest of the radio industry, the majority of our stations have deployed HD Radio®. HD Radio offers listeners advantages over standard analog broadcasts, including improved sound quality and additional digital channels. In addition to offering secondary channels, the HD Radio spectrum allows broadcasters to transmit other forms of data. We are participating in a joint venture with other broadcasters to provide the bandwidth that a third party uses to transmit location-based data to hand-held and in-car navigation devices. The number of radio receivers incorporating HD Radio has increased in the past year, particularly in new automobiles. It is unclear what impact HD Radio will have on the markets in which we operate.

The Company has also aggressively worked to harness the power of broadband and mobile media distribution in the development of emerging business opportunities by developing highly interactive websites with content that engages our listeners, deploying mobile applications and streaming our content, harnessing the power of digital video on our websites and YouTube channels, and delivering real-time traffic to navigation devices.

The results of our radio operations are heavily dependent on the results of our stations in the New York market, which account for approximately 40% of our radio net revenues. Our acquisition of WBLS-FM and WLIB-AM in New York in fiscal 2015 enhanced our ability to adapt to competitive environment shifts in that market, but some of our competitors that operate larger station clusters are able to leverage their market share to extract a greater percentage of available advertising revenue through packaging a variety of advertising inventory at discounted unit rates. Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were down 0.3% for the twelve months ended February 28, 2018, as compared to the same period of the prior year. During this period, revenues for our New York cluster were down 2.0%. Our New York operations were negatively impacted by intensifying competition for transactional business in the local market. We have made changes in our local sales organization in New York to derive more local, direct business and reduce our reliance on transactional, agency business.

As part of our business strategy, we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, Emmis’ 2014 Credit Agreement substantially limits our ability to make acquisitions. We also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so. In that respect, over the past two fiscal years we have sold radio stations in Terre Haute and Los Angeles and closed on the sale our radio stations in St. Louis on April 30, 2018. We have also sold all of our publishing assets, except Indianapolis Monthly. We continue to explore the sale of WLIB-AM in New York and other assets, including land in Indianapolis.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that encompass significant judgments and uncertainties, and potentially derive materially different results under different assumptions and conditions. We believe that our critical accounting policies are those described below.

Revenue Recognition

Broadcasting revenue is recognized as advertisements are aired. Publication revenue is recognized in the month of delivery of the publication. Both broadcasting revenue and publication revenue recognition is subject to meeting certain conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured. These criteria are generally met at the time the advertisement is aired for broadcasting revenue and upon delivery of the publication for publication revenue. Advertising revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.

FCC Licenses and Goodwill

We have made acquisitions in the past for which a significant amount of the purchase price was allocated to FCC licenses and goodwill assets. As of February 28, 2018, we have recorded approximately $200.0 million in goodwill and FCC licenses (including FCC licenses classified as held for sale), which represents approximately 74% of our total assets.

In the case of our radio stations, we would not be able to operate the properties without the related FCC license for each property. FCC licenses are renewed every eight years; consequently, we continually monitor our stations’ compliance with the various regulatory requirements. Historically, all of our FCC licenses have been renewed at the end of their respective periods, and we expect that all FCC licenses will continue to be renewed in the future. We consider our FCC licenses to be indefinite-lived intangibles.

We do not amortize goodwill or other indefinite-lived intangible assets, but rather test for impairment at least annually or more frequently if events or circumstances indicate that an asset may be impaired. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by Accounting Standards Codification (“ASC”) Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under a Local Marketing Agreement by another broadcaster.

We complete our annual impairment tests on December 1 of each year and perform additional interim impairment testing whenever triggering events suggest such testing is warranted.

Valuation of Indefinite-lived Broadcasting Licenses

Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC licenses, the Company uses an income valuation method when it performs its impairment tests. Under this method, the Company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was commencing operations in its respective market at the beginning of the valuation period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company assumes the competitive situation that exists in each market remains unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period. In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license. Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control. The projections incorporated into our license valuations take current economic conditions into consideration.

Below are some of the key assumptions used in our annual impairment assessments. In recent years, we have reduced long-term growth rates in the markets in which we operate based on recent industry trends and our expectations for the markets going forward. The methodology used to value our FCC licenses has not changed in the three-year period ended February 28, 2018.

December 1, 2015

December 1, 2016

December 1, 2017

Discount Rate

12.0% - 12.4%

12.2% - 12.5%

12.1% - 12.4%

Long-term Revenue Growth Rate

1.3% - 2.5%

1.0% - 2.0%

1.0% - 1.8%

Mature Market Share

3.2% - 29.3%

3.1% - 30.4%

12.7% - 31.1%

Operating Profit Margin

25.0% - 39.1%

25.1% - 39.1%

27.0% - 39.1%

Although the Company did not record an impairment charge related to FCC licenses in the current year, we did record impairment charges related to FCC licenses in the past two fiscal years. Impairment charges recognized as part of our December 1, 2015 and 2016 annual testing were $5.4 million and $6.9 million, respectively. These impairments were mostly related to declining market revenues combined with lowered expectations for future long-term revenue growth rates as noted in the table above.

Valuation of Goodwill

ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. The Company conducts its impairment test on December 1 of each fiscal year, unless indications of impairment exist during an interim period. When assessing its goodwill for impairment, the Company uses an enterprise valuation approach to determine the fair value of each of the Company’s reporting units (radio stations grouped by market, excluding any stations that are being operated pursuant to an LMA). Management determines enterprise value for each of its reporting units by multiplying the two-year average station operating income generated by each reporting unit (current year based on actual results and the next year based on budgeted results) by an estimated market multiple. The Company uses a blended station operating income trading multiple of publicly traded radio operators as well as recent market transactions as a benchmark for the multiple it applies to its radio reporting units. For the annual assessment performed as of December 1, 2017, the Company applied a market multiple of 8.0 times the reporting unit’s operating performance. Management believes this methodology for valuing radio properties is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons and market

transactions. To corroborate the fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its fair value, the Company recognizes an impairment charge equal to the difference in the statement of operations.

The Company adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment as of March 1, 2017. Prior to March 1, 2017, the Company performed a two-step impairment test for goodwill. Goodwill impairments recorded during the years ended February 28 (29), 2016 and 2017 were recorded using the two-step methodology. Goodwill impairments recorded from March 1, 2017 forward will be recorded using the simplified method as described above.

The Company used an income approach to determine the enterprise value of Digonex. Digonex is a dynamic pricing business that does not have well-established industry trading multiples, analyst estimates of valuations, or recently completed transactions that would indicate fair values of these businesses. As such, the Company used a discounted cash flow method to determine the fair value of Digonex.

During our December 2015 annual goodwill impairment test, the Company wrote off $0.7 million of goodwill associated with Digonex. Emmis acquired a controlling interest in Digonex in June 2014 and recorded approximately $2.8 million of goodwill. The performance of Digonex since Emmis acquired its controlling interest has lagged the original assumptions used when estimating the fair values of the acquired assets and liabilities of the business. This, coupled with a reduction in long-term growth estimates for Digonex, resulted in a step-one indication of impairment. Upon completion of the step-two analysis, the Company determined that Digonex goodwill was partially impaired.

During the quarter ended August 31, 2016, the Company lowered its growth expectations for Digonex for the next several years due to slow client adoption of dynamic pricing services. While the Company continues to believe in the long-term growth prospects of Digonex, the lengthy sales cycle has caused Digonex to perform below expectations to date. Despite lowering near-term growth expectations for Digonex in connection with our annual impairment review for fiscal 2016 as discussed above, performance in the first six months of fiscal 2017 indicated that a further revision was appropriate. Our then-current projections assumed that Digonex would generate cash flow losses in the short and medium-term. The combination of lower-than-expected current period results, coupled with downward revisions to future revenue projections, resulted in an impairment indicator that caused the Company to assess goodwill and related intangibles on an interim basis during the quarter ended August 31, 2016. The Company’s discounted cash flow analysis for Digonex indicated a nominal enterprise value. Therefore, in connection with the interim impairment test, Emmis determined that Digonex’s goodwill was fully impaired and recorded an impairment loss of $2.1 million. Subsequent to our impairment of Digonex goodwill and the sale of Texas Monthly (see note 7 for more discussion), the Company’s goodwill relates entirely to its Radio segment.

During our December 2017 annual goodwill impairment test, the Company wrote off $0.3 million of goodwill associated with our Indianapolis radio cluster. Weak ratings and declining market revenues significantly impacted our operating performance in Indianapolis. This resulted in the carrying value of our Indianapolis radio cluster exceeding its estimated fair value by more than the amount of goodwill we had recorded for the cluster on the assessment date. As such, the Company fully impaired the goodwill of this cluster.

Sensitivity Analysis

Based on the results of our December 1, 2017 annual impairment assessment, the fair value of our broadcasting licenses was approximately $228.2 million, which was in excess of the $195.6 million carrying value by $32.6 million, or 16.7%. Should our estimates or assumptions worsen, or should negative events or circumstances occur in the units that have limited fair value cushion, additional license impairments may be needed. Subsequent to our annual impairment test on December 1, 2017, we sold our radio stations in St. Louis. These broadcasting licenses have been reclassified to current assets held for sale in the accompanying consolidated balance sheets.

If we were to assume a 100 basis point change in any of our three key assumptions (a reduction in the long-term revenue growth rate, a reduction in local commercial share or an increase in the discount rate) used to determine the fair value of our broadcasting licenses on December 1, 2017, the resulting impairment charge would have been $28.1 million, $17.6 million and $14.1 million, respectively. Also, if we were to assume a market multiple decrease of one or a 10% decrease in the two-year average station operating income, two of the key assumptions used to determine the fair value of our goodwill on December 1, 2017, the resulting estimates of enterprise valuations would still exceed the carrying values of the enterprises. As such, no additional goodwill impairment would be recognized if either of these two key assumptions were lowered.

Deferred Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities recorded for financial reporting purposes as compared to amounts recorded for income tax purposes. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value.

Insurance Claims and Loss Reserves

The Company is self-insured for most healthcare claims, subject to stop-loss limits. Claims incurred but not reported are recorded based on historical experience and industry trends, and accruals are adjusted when warranted by changes in facts and circumstances. The Company had $0.8 million and $0.4 million accrued for employee healthcare claims as of February 28, 2017 and 2018, respectively. The Company also maintains large deductible programs (ranging from $100 thousand to $250 thousand per occurrence) for workers’ compensation, employment liability, automotive liability and media liability claims.

DISPOSITIONS

The transactions described below impact the comparability of operating results for the three years ended February 28, 2018.

Sale of KPWR-FM

On August 1, 2017, Emmis closed on its sale of substantially all of the assets of KPWR-FM for gross proceeds of approximately $80.1 million to affiliates of the Meruelo Group. Under the terms of the Fourth Amendment to Emmis’ senior credit facility, Emmis was required to enter into definitive agreements to sell assets that generated at least $80 million of proceeds by January 18, 2018 and to close on such transactions following receipt of required regulatory approvals. The sale of KPWR-FM satisfied these requirements. Emmis found it more advantageous to sell its standalone radio station in Los Angeles than to sell other assets to meet this requirement. After payment of transaction costs and withholding for estimated tax obligations, net proceeds totaled approximately $73.6 million and were used to repay term loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $76.7 million gain on the sale of KPWR-FM. KPWR-FM had historically been included in our Radio segment. This disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.

On February 28, 2017, Emmis closed on its sale of substantially all of the assets of Los Angeles Magazine, Atlanta Magazine, Cincinnati Magazine and Orange Coast Magazine (the “Hour Magazines”) for gross proceeds of $6.5 million to Hour Media Group, LLC. The Company previously announced that it was exploring strategic alternatives for its publishing

division, excluding Indianapolis Monthly. Emmis decided to sell most of its publishing assets to reduce debt outstanding. Emmis received net proceeds of $2.9 million, consisting of the stated purchase price of $6.5 million, less $0.7 million held in escrow and disposition costs totaling $2.9 million. The $2.9 million of disposition costs primarily relate to $1.6 million of severance costs and transaction advisory fees of $1.0 million. The funds held in escrow secure Emmis’ post closing indemnification obligations in the purchase agreement and were scheduled to be released six months after the closing of the transaction. The release of these funds from escrow is currently being litigated. See Note 11 to the accompanying consolidated financial statements. After settling retention bonuses to affected employees, net proceeds were used to repay term loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $2.7 million gain on the sale of the Hour Magazines. These magazineshad historically been included in our Publishing segment. This disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.

Sale of Terre Haute, Indiana radio stations

On January 30, 2017, Emmis closed on its sale of substantially all of the assets of its radio stations in Terre Haute, Indiana, in two contemporaneous transactions. In one transaction, Emmis sold the assets of WTHI-FM and the intellectual property of WWVR-FM to Midwest Communications, Inc. In the other transaction, Emmis sold the assets of WFNF-AM, WFNB-FM, WWVR-FM (other than the intellectual property for that station) and an FM translator to DLC Media, Inc. The Company previously announced that it was exploring strategic alternatives for these radio stations. Emmis believed that operating stations in Terre Haute, Indiana was not a core part of its radio strategy and its strong market position in the Terre Haute market would be attractive to potential buyers. At closing, Emmis received gross proceeds of approximately $5.2 million for both transactions. After payment of brokerage and other transaction costs, net proceeds totaled $4.8 million and were used to repay term loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $3.5 million gain on the sale of its Terre Haute radio stations. The Terre Haute radio stationshad historically been included in our Radio segment. This disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.

Sale of Texas Monthly

On November 1, 2016, Emmis closed on its sale of Texas Monthly for gross proceeds of $25.0 million in cash to a subsidiary of Genesis Park, LP. The Company previously announced that it was exploring strategic alternatives for its publishing division, excluding Indianapolis Monthly. Emmis believed that its publishing portfolio had significant brand value and planned to use proceeds from the sale of its publishing properties to repay debt. Emmis received net proceeds of $23.4 million, consisting of the stated purchase price of $25.0 million, net of estimated purchase price adjustments totaling $0.7 million and disposition costs totaling $0.9 million. The $0.9 million of disposition costs primarily related to severance costs. Proceeds were used to repay term and revolving loan indebtedness under Emmis’ senior credit facility. Emmis recorded a $17.4 million gain on the sale of Texas Monthly. Texas Monthly had historically been included in our Publishing segment. This disposal did not qualify for reporting as a discontinued operation as it did not represent a strategic shift for the Company as described in Accounting Standards Codification 205-20-45-1C.

Radio net revenues decreased during the year ended February 28, 2018 mostly due to the sale of KPWR-FM in Los Angeles on August 1, 2017 and the sale of our Terre Haute radio stations in January 2017. Excluding the effects of radio station sales, our radio net revenues would have been down less than 3% for the year ended February 28, 2018. We typically monitor the performance of our stations against the aggregate performance of the markets in which we operate based on reports for the periods prepared by Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter arrangements. A summary of market revenue performance and Emmis’ revenue performance in those markets for the year ended February 28, 2018 is presented below:

For the year ended February 28, 2018

Overall Market

Emmis

Market

Revenue Performance

Revenue Performance 1

New York

(0.3

%)

(2.0

%)

St. Louis

(3.0

%)

0.7

%

Indianapolis

(3.4

%)

(12.9

%)

Austin

1.1

%

1.7

%

All Markets

(0.8

%)

(2.4

%)

1 Emmis revenue performance in New York excludes the results of WEPN-FM which is being operated pursuant to an LMA

Our weak performance in Indianapolis mostly relates to a decline in the ratings of our stations there. We have taken several steps to improve our ratings in Indianapolis, including additional promotional support, and we expect our revenue performance to improve in fiscal 2019.

Publishing net revenues were down for the year ended February 28, 2018 due to the sale of all but one of our magazines during the year ended February 28, 2017.

Emerging technologies net revenues, which primarily relate to licensing fees of our TagStation software and pricing services provided by Digonex, increased during the year ended February 28, 2018 principally due to client growth at Digonex.

Total station operating expenses excluding depreciation and amortization expense

$

180,085

$

119,758

$

(60,327

)

(33.5

)%

The decrease in station operating expenses excluding depreciation and amortization expense for our radio division for the year ended February 28, 2018 is due to the sale of our Terre Haute radio stations in the prior year and KPWR-FM in August 2017. Excluding the effects of radio station sales, our radio station operating expenses excluding depreciation and amortization expense would have been flat for the year ended February 28, 2018, as compared to the same period of the prior year.

The decrease in station operating expenses excluding depreciation and amortization expense for publishing for the year ended February 28, 2018 is due to the sale of all but one of our magazines during the year ended February 28, 2017.

Station operating expenses excluding depreciation and amortization expense for emerging technologies decreased in the year ended February 28, 2018 due to NextRadio funding $3.4 million of its obligation to Sprint with the proceeds of a third party loan in the prior year. This amount was expensed at the time it was remitted to Sprint. Excluding this item in the prior year, station operating expenses excluding depreciation and amortization expense for emerging technologies would have increased during the year ended February 28, 2018 due to (i) NextRadio funding $0.6 million of its obligation to Sprint with the proceeds of a third party loan in March 2017, which was expensed at the time it was remitted to Sprint, (ii) Emmis contributing $0.3 million to NextRadio, which was remitted to Sprint in connection with the final payment to Sprint and expensed at that time, and (iii) costs associated with enhancements to the NextRadio application and TagStation platform, including the addition of streaming features and enhancements to our data reporting capabilities.

Corporate expenses excluding depreciation and amortization expense:

For the years ended February 28,

2017

2018

$ Change

% Change

(As reported, amounts in thousands)

Corporate expenses excluding depreciation and amortization expense

$

11,359

$

10,712

$

(647

)

(5.7

)%

Corporate expenses excluding depreciation and amortization expense decreased during the year ended February 28, 2018 due to nonrecurring costs incurred during the prior year related to a going private transaction that was not consummated. Costs incurred during the prior year related to the going private transaction were approximately $0.9 million.

Impairment loss on intangible assets:

For the years ended February 28,

2017

2018

$ Change

% Change

(As reported, amounts in thousands)

Impairment loss on intangible assets:

Radio

$

6,855

$

265

$

(6,590

)

(96.1

)%

Emerging Technologies

2,988

—

$

(2,988

)

(100.0

)%

Impairment loss on intangible assets

$

9,843

$

265

$

(9,578

)

(97.3

)%

In connection with an interim review for impairment during the quarter ended August 31, 2016, the Company recorded an

impairment loss of $2.1 million related to goodwill and $0.9 million related to definite-lived intangible assets, all of which

to zero. In connection with the annual impairment review conducted on December 1, 2016, the Company concluded that its FCC license for 98.7FM in New York, and the licenses for our Austin, St. Louis and Terre Haute clusters were impaired by $6.9 million.

In connection with the annual impairment review conducted on December 1, 2017, the Company concluded that goodwill associated with its Indianapolis radio operations was impaired and recorded an impairment loss of $0.3 million to reduce the carrying value of this goodwill to zero.

We could record impairment charges in future periods if we determine the carrying value of our intangible assets exceeds their fair value. Our annual impairment test of our broadcasting licenses and goodwill is performed each year as of December 1. We may be required to retest prior to our next annual evaluation, which could result in additional impairment charges.

Gain on sale of radio and publishing assets, net of disposition costs:

For the years ended February 28,

2017

2018

$ Change

% Change

(As reported, amounts in thousands)

Gain on sale of radio and publishing assets, net of disposition costs:

Radio

$

(3,478

)

$

(76,745

)

$

(73,267

)

N/A

Publishing

(20,079

)

141

20,220

N/A

Emerging Technologies

—

—

$

—

N/A

Gain on sale of radio and publishing assets, net of disposition costs

$

(23,557

)

$

(76,604

)

$

(53,047

)

N/A

On August 1, 2017, the Company closed on its sale of KPWR-FM in Los Angeles and recorded a $76.7 million gain on sale of assets, net of disposition costs. On January 30, 2017, we closed on the sale of our Terre Haute, Indiana radio cluster. We recognized a $3.5 million gain on sale of the cluster.

On November 1, 2016, we closed on the sale of Texas Monthly and recorded a $17.4 million gain on sale of assets, net of disposition costs. On February 28, 2017, we closed on the sale of Los Angeles Magazine, Atlanta Magazine, Cincinnati Magazine and Orange Coast Magazine and recorded a $2.7 million gain on sale of assets, net of disposition costs.

Depreciation and amortization:

For the years ended February 28,

2017

2018

$ Change

% Change

(As reported, amounts in thousands)

Depreciation and amortization:

Radio

$

3,462

$

2,792

$

(670

)

(19.4

)%

Publishing

230

19

(211

)

(91.7

)%

Corporate & Emerging Technologies

1,114

817

(297

)

(26.7

)%

Total depreciation and amortization

$

4,806

$

3,628

$

(1,178

)

(24.5

)%

The decrease in radio depreciation and amortization expense for the year ended February 28, 2018 mostly relates to the sale of our Terre Haute radio stations near the end of the prior fiscal year and the sale of KPWR-FM during the current fiscal year.

The decrease in publishing depreciation and amortization expense for the year ended February 28, 2018 is due to the sale of all but one of our magazines during the year ended February 28, 2017.

The decrease in corporate & emerging technologies is mostly due to reduced amortization expense of Digonex-related definite-lived intangible assets. The Company recorded an impairment charge in fiscal 2017 related to these definite-lived intangible assets, which reduced the carrying value of these definite-lived intangibles to zero.

Radio operating income increased for year ended February 28, 2018 due to the gain on sale of KPWR-FM.

Publishing operating income decreased due to the gain on sale recorded in the prior year related to five publications that were sold during that fiscal year.

Corporate and emerging technologies operating loss decreased in the year ended February 28, 2018 mostly due to the following items in the prior year: (1) $3.0 million impairment charge related to Digonex intangible assets, (2) $3.4 million of proceeds from a third party loan to NextRadio that were remitted to Sprint, and (3) $0.9 million of costs associated with an unsuccessful going private transaction. These costs were partially offset by additional emerging technologies operating expenses in the current year as discussed above.

Interest expense:

For the years ended February 28,

2017

2018

$ Change

% Change

(As reported, amounts in thousands)

Interest expense

$

(18,018

)

$

(15,143

)

$

2,875

16.0

%

The decrease in interest expense is attributable to lower debt balances as the Company used the proceeds from its various asset sales to reduce debt outstanding.

Loss on debt extinguishment:

For the years ended February 28,

2017

2018

$ Change

% Change

(As reported, amounts in thousands)

Loss on debt extinguishment

$

(620

)

$

(2,662

)

$

(2,042

)

N/M

The Company repaid outstanding term loans under its credit facility with proceeds from asset sales during fiscal 2018. The pro-rata portion of unamortized debt discount that was written-off in connection with these repayments was classified as a loss on debt extinguishment.

Other (expense) income, net:

For the years ended February 28,

2017

2018

$ Change

% Change

(As reported, amounts in thousands)

Other (expense) income, net

$

(160

)

$

35

$

195

N/M

Other expense in fiscal 2017 mostly relates to a $0.3 million other-than-temporary impairment of an equity method investment that reduced the carrying value of the investment to zero as of February 28, 2017.

During the year ended February 28, 2017, the Company was recording a valuation allowance for its net deferred tax assets, including its net operating loss carryforwards, but excluding deferred tax liabilities related to indefinite-lived intangibles. During fiscal 2018, the taxable gain associated with the sale of KPWR-FM in Los Angeles was mostly offset by the utilization of deferred tax assets, including substantially all Federal net operating loss carryforwards. The benefit recorded in fiscal 2018 principally relates to the Tax Cuts and Jobs Act (the “Act”), which was signed into law on December 22, 2017. Among its numerous changes to the Internal Revenue Code, the Act reduced U.S. corporate rates from 35% to 21%. The corresponding reduction of deferred tax liabilities based on this lower rate resulted in a one-time benefit of $14.2 million in fiscal 2018.

Consolidated net income:

For the years ended February 28,

2017

2018

$ Change

% Change

(As reported, amounts in thousands)

Consolidated net income

$

13,220

$

84,759

$

71,539

N/M

The increase in consolidated net income is principally due to the $76.7 million gain on sale associated with the sale of KPWR-FM in Los Angeles and the $14.2 million tax benefit resulting from the Tax Cuts and Jobs Act in fiscal 2018, partially offset by gains recorded on sales of radio stations and magazines in the prior year.

YEAR ENDED FEBRUARY 29, 2016 COMPARED TO YEAR ENDED FEBRUARY 28, 2017

Net revenues:

For the years ended February 28 (29),

2016

2017

$ Change

% Change

(As reported, amounts in thousands)

Net revenues:

Radio

$

169,228

$

165,148

$

(4,080

)

(2.4

)%

Publishing

60,992

48,559

(12,433

)

(20.4

)%

Emerging Technologies

1,213

861

$

(352

)

(29.0

)%

Total net revenues

$

231,433

$

214,568

$

(16,865

)

(7.3

)%

Radio net revenues decreased during the year ended February 28, 2017 as our radio division underperformed the aggregate performance of the markets in which we operate. We typically monitor the performance of our stations against the aggregate performance of the markets in which we operate based on reports for the periods prepared by Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter arrangements. A summary of market revenue performance and Emmis’ revenue performance in those markets for the year ended February 28, 2017 is presented below:

1 Emmis revenue performance in New York excludes the results of WEPN-FM which is being operated pursuant to an LMA

Our weak performance in Los Angeles mostly related to a format competitor that began directly competing against our

station there in February 2015. The revenue impact was most pronounced beginning in the fall of 2015. Excluding Los Angeles, our radio revenues would have been down 0.3% in markets that were up 0.5% according to Miller Kaplan.

For the year ended February 28, 2017, as compared to the prior year, our average rate per minute for our domestic radio stations was down 1.9%, and our minutes sold were down 2.9%.

Publishing net revenues were down for the year ended February 28, 2017 mostly due to the sale of Texas Monthly on November 1, 2016.

Total station operating expenses, excluding depreciation and amortization expense

$

183,394

$

180,085

$

(3,309

)

(1.8

)%

Radio station operating expenses, excluding LMA fees and depreciation and amortization expense decreased due to nonrecurring severance expenses incurred during Q4 of the prior year.

Station operating expenses excluding depreciation and amortization expense for publishing decreased during the year ended February 28, 2017 due to the sale of Texas Monthly on November 1, 2016, partially offset by severance and retention bonuses for employees of the five magazines that were sold in fiscal 2017.

Station operating expenses excluding depreciation and amortization expense for emerging technologies increased during the year ended February 28, 2017 mostly due to (i) NextRadio funding $3.4 million of its obligation to Sprint with the proceeds of a third party loan and (ii) increased NextRadio headcount during the year across all departments to support increased activity expected in upcoming years.

Corporate expenses excluding depreciation and amortization expense decreased during the year ended February 28, 2017 mostly due to personnel bonuses, which totaled approximately $1.0 million in fiscal 2016, but there were no such bonuses in fiscal 2017. Also contributing to the decrease in corporate expenses excluding depreciation and amortization expense was the effect of cost reduction actions taken in January 2016, which were partially offset by costs incurred related to the evaluation of a go-private offer received by the Company during fiscal 2017.

Impairment loss on intangible assets:

For the years ended February 28 (29),

2016

2017

$ Change

% Change

(As reported, amounts in thousands)

Impairment loss on intangible assets

$

9,499

$

9,843

$

344

3.6

%

In connection with the annual impairment review conducted on December 1, 2015, the Company concluded that its FCC license for 98.7FM in New York, and the licenses for our Austin, St. Louis and Terre Haute clusters were impaired by $5.4 million. The Company also concluded that the goodwill and patents associated with Digonex were impaired and recorded an impairment loss of $4.1 million related to these assets.

In connection with an interim review for impairment during the quarter ended August 31, 2016, the Company recorded an

impairment loss of $2.1 million related to goodwill and $0.9 million related to definite-lived intangible assets, all of which

to zero. In connection with the annual impairment review conducted on December 1, 2016, the Company concluded that its FCC license for 98.7FM in New York, and the licenses for our Austin, St. Louis and Terre Haute clusters were impaired by $6.9 million.

We could record impairment charges in future periods if we determine the carrying value of our intangible assets exceeds their fair value. Our annual impairment test of our broadcasting licenses and goodwill is performed each year as of December 1. We may be required to retest prior to our next annual evaluation, which could result in additional impairment charges.

Gain on sale of radio and publishing assets, net of disposition costs:

For the years ended February 28 (29),

2016

2017

$ Change

% Change

(As reported, amounts in thousands)

Gain on sale of radio and publishing assets, net of disposition costs:

Radio

$

—

$

(3,478

)

$

(3,478

)

N/A

Publishing

—

(20,079

)

(20,079

)

N/A

Emerging Technologies

—

—

$

—

N/A

Gain on sale of radio and publishing assets, net of disposition costs

$

—

$

(23,557

)

$

(23,557

)

N/A

On November 1, 2016, we closed on the sale of Texas Monthly. We recognized a $17.4 million gain on sale of Texas Monthly. On January 30, 2017, we closed on the sale of our Terre Haute, Indiana radio cluster. We recognized a $3.5 million gain on sale of the cluster. On February 28, 2017, we closed on the sale of Los Angeles Magazine, Atlanta Magazine, Cincinnati Magazine and Orange Coast Magazine. We recognized a $2.7 million gain on sale of these magazines.

The increase in depreciation and amortization for the year ended February 28, 2017 for our radio division is mostly due to depreciation expense associated with broadcasting equipment and other equipment that was placed into service toward the end of the prior fiscal year.

The decrease in depreciation and amortization for the year ended February 28, 2017 for corporate & emerging technologies is mostly due to reduced amortization expense of Digonex-related definite-lived intangible assets. The Company recorded impairment charges related to these definite-lived intangible assets in connection with its annual review of impairment during fiscal 2016 and with its interim review of impairment as of August 31, 2016, the latter of which reduced the carrying value of these definite-lived intangibles to zero.

Operating income (loss):

For the years ended February 28 (29),

2016

2017

$ Change

% Change

(As reported, amounts in thousands)

Operating income (loss):

Radio

$

43,527

$

42,819

$

(708

)

(1.6

)%

Publishing

1,835

17,345

15,510

845.2

%

Corporate & Emerging Technologies

(25,698

)

(28,256

)

(2,558

)

10.0

%

Total operating income (loss)

$

19,664

$

31,908

$

12,244

62.3

%

Radio operating income decreased for the year ended February 28, 2017 principally due to the effect of revenue declines for all of our markets except St. Louis and larger impairment losses recorded during the year. The gain on sale of our Terre Haute, Indiana cluster and lower radio operating expenses partially offset the effect of the revenue declines and larger impairment losses.

Publishing operating income increased due to the gain on sale of the five publications that were sold during the year.

Corporate and Emerging Technologies operating losses increased mostly due to additional investments in TagStation and NextRadio and proceeds from a third party loan to NextRadio that were remitted to Sprint, as previously discussed. These increases were partially offset by lower overall corporate expenses.

Interest expense:

For the years ended February 28 (29),

2016

2017

$ Change

% Change

(As reported, amounts in thousands)

Interest expense

$

(18,956

)

$

(18,018

)

$

938

(4.9

)%

The decrease in interest expense is attributable to lower debt balances as the Company used the proceeds from its various asset sales during fiscal 2017 to reduce debt outstanding.

The Company repaid outstanding term loans under its credit facility with proceeds from asset sales during fiscal 2017. The pro-rata portion of unamortized debt discount that was written-off in connection with these repayments was classified as a loss on debt extinguishment.

Other income (expense), net:

For the years ended February 28 (29),

2016

2017

$ Change

% Change

(As reported, amounts in thousands)

Other income (expense), net

$

1,057

$

(160

)

$

(1,217

)

115.1

%

Other income in fiscal 2016 mostly relates to various nonrecurring recoveries and noncash gains. Other expense in fiscal 2017 mostly relates to a $0.3 million other-than-temporary impairment of an equity method investment that reduced the carrying value of the investment to zero as of February 28, 2017.

Provision (benefit) for income taxes:

For the years ended February 28 (29),

2016

2017

$ Change

% Change

(As reported, amounts in thousands)

Provision (benefit) for income taxes

$

2,069

$

(110

)

$

(2,179

)

(105.3

)%

The Company previously recorded a full valuation allowance against its net deferred tax assets, except for the deferred tax liabilities related to indefinite-lived intangibles. Although the Company continued to record a full valuation allowance in fiscal 2016 and 2017, the income tax expense related to deferred tax liabilities for indefinite-lived intangibles must still be recorded. Because this amount is based on tax amortization, the full year amount of associated tax expense is known at the beginning of the year and the Company recognized the tax expense related to deferred tax liabilities for indefinite-lived intangibles evenly through the year as a discrete item. Separately, the company recorded tax benefits of $1.3 million and $2.4 million related to impairment charges on FCC licenses during the years ended February 29, 2016 and February 28, 2017, respectively.

Consolidated net (loss) income:

For the years ended February 28 (29),

2016

2017

$ Change

% Change

(As reported, amounts in thousands)

Consolidated net (loss) income

$

(304

)

$

13,220

$

13,524

N/M

The increase in consolidated net income (loss) is principally due to the $23.6 million gain on sale associated with the sale of our Terre Haute, Indiana radio cluster and five magazines during the year ended February 28, 2017. This gain is partially offset by other items, including lower radio division revenues and higher expenses at our TagStation and NextRadio businesses.

Loss on modification of preferred stock:

For the years ended February 28 (29),

2016

2017

$ Change

% Change

(As reported, amounts in thousands)

Loss on modification of preferred stock

$

(162

)

$

—

$

162

N/A

On February 17, 2016, Emmis filed amendments to its Articles of Incorporation that modified the rights of holders of the Company’s Preferred Stock. The amendments, among other things, modified the conversion ratio for shares of Preferred Stock

into Class A Common Stock from 2.44 shares of Class A Common Stock to 2.80 shares of Class A Common Stock. In connection with this modification, the Company recorded a loss of $0.2 million.

LIQUIDITY AND CAPITAL RESOURCES

2014 CREDIT AGREEMENT

On June 10, 2014, Emmis entered into the 2014 Credit Agreement, by and among the Company, EOC, as borrower (the “Borrower”), certain other subsidiaries of the Company, as guarantors (the “Subsidiary Guarantors”) and the lenders party thereto. Capitalized terms in this section not defined elsewhere in this 10-K are defined in the 2014 Credit Agreement and related amendments.

The 2014 Credit Agreement consists of remaining balances of a term loan ($152.2 million and $69.5 million as of February 28, 2017 and 2018, respectively) and a revolving credit facility with a maximum commitment of $20.0 million. Outstanding revolver borrowings as of February 28, 2018 were $9.0 million. No revolver borrowings were outstanding as of February 28, 2017. The revolving credit facility includes a sub-facility for the issuance of up to $5.0 million of letters of credit. No letters of credit were outstanding during the three years ended February 28, 2018.

The term loan is due not later than April 18, 2019 and the revolving credit facility expires on August 31, 2018. The Company is not required to make scheduled principal payments under the term loan or revolving credit facility prior to these dates. Amounts outstanding under the 2014 Credit Agreement bear interest, at the Company’s option, at either (i) the Alternate Base Rate (but not less than 2.00%) plus 6.00% or (ii) the Adjusted LIBO Rate plus 7.00%. The Company pays an unused commitment fee of 75 basis points per annum on the average unused amount of the revolving credit facility. If the Company has not refinanced the 2014 Credit Agreement by July 18, 2018, any principal payments on the term loans thereafter must be accompanied by a fee to the lenders equal to 2% of the amount being repaid. In addition, on each ninety day anniversary of July 18, 2018, such fee increases by an additional 0.5% and the interest rate on amounts outstanding increases by 0.5%. The weighted average borrowing rate of amounts outstanding related to the 2014 Credit Agreement was 7.0% and 8.7% at February 28, 2017 and 2018, respectively.

Our 2014 Credit Agreement debt is carried net of an unamortized original issue discount of $1.8 million as of February 28, 2018. The original issue discount is being amortized as additional interest expense over the life of the 2014 Credit Agreement.

The 2014 Credit Agreement requires the Company to comply with certain financial and non-financial covenants. These covenants include a minimum Consolidated EBITDA covenant through May 31, 2018. Subsequent to the quarter ending May 31, 2018, the Company is required to comply with a Total Leverage Ratio covenant of 4.00:1.00. Additionally, the Company is required to meet a minimum Interest Coverage Ratio of at least 1.60:1.00.

The obligations under the 2014 Credit Agreement are secured by a perfected first priority security interest in substantially all of the assets of the Company, the Borrower and the Subsidiary Guarantors.

On April 30, 2018, Emmis closed on its sale of substantially all of the assets of its radio stations in St. Louis in two separate transactions. In one transaction, Emmis sold the assets of KSHE-FM and KPNT-FM to affiliates of Hubbard Radio. In the other transaction, Emmis sold the assets of KFTK-FM and KNOU-FM to affiliates of Entercom Communications Corp. At closing, Emmis received aggregate gross proceeds of $60.0 million. After deducting estimated taxes payable of $15.9 million and transaction-related expenses, net proceeds totaled $40.5 million and were used to repay term loan indebtedness under Emmis’ senior credit facility. The taxes payable as a result of the transactions are not required to be remitted to the applicable taxing authority until May 2019, so we repaid amounts outstanding under our revolver and we plan to hold excess cash on our balance sheet to enhance our liquidity position until we remit the taxes in May 2019.

SOURCES OF LIQUIDITY

Our primary sources of liquidity are cash provided by operations and cash available through revolver borrowings under our credit facility. Our primary uses of capital during the past few years have been, and are expected to continue to be, capital expenditures, working capital, debt service requirements, repayment of debt and investments in future growth opportunities in new businesses.

At February 28, 2018, we had cash and cash equivalents of $4.1 million and net working capital of $27.1 million. At February 28, 2017, we had cash and cash equivalents of $11.3 million and net working capital of $(8.1) million. The increase in

net working capital is largely due to our St. Louis radio stations being classified as current assets held for sale as of February 28, 2018. In addition, during fiscal 2018, we extended the maturity of non-recourse debt associated with Digonex from December 31, 2017 to December 31, 2020. Accordingly, this debt, totaling $5.5 million and classified as current as of February 28, 2017, is classified as long-term as of February 28, 2018.

The Company continually projects its anticipated cash needs, which include its operating needs, capital needs,

and principal and interest payments on its indebtedness. As of the filing of this Form 10-K, management believes the Company

can meet its liquidity needs through the end of fiscal year 2019 with cash and cash equivalents on hand and projected cash

flows from operations. Based on these projections, management also believes the Company will be in compliance with its debt

covenants through the end of fiscal year 2019.

Since we manage cash on a consolidated basis, any cash needs of a particular segment or operating entity are met by intercompany transactions. See Investing Activities below for a discussion of specific segment needs.

Operating Activities

Cash flows provided by operating activities were $19.1 million and $0.2 million for the years ended February 28, 2017 and 2018, respectively. The decrease in cash flows provided by operating activities was attributable to lower operating income (excluding gains on the sale of radio stations) of our radio division, coupled with the settlement of liabilities with cash balances.

Cash flows provided by operating activities were $25.1 million and $19.1 million for the years ended February 28 (29), 2016 and 2017, respectively. The decrease in cash flows provided by operating activities was mainly attributable to lower operating income (excluding the effect of gains on the sale of businesses) of our radio and publishing businesses.

Investing Activities

Cash flows provided by investing activities of $78.4 million for the year ended February 28, 2018 consisted of $80.2 million of proceeds from the sale of KPWR-FM in Los Angeles, partially offset by $1.8 million of capital expenditures.

Cash flows provided by investing activities of $28.5 million for the year ended February 28, 2017 primarily consisted of $31.3 million of proceeds from the sale of our Terre Haute, Indiana radio cluster and five of our magazines, partially offset by $2.9 million of capital expenditures.

Cash used in investing activities of $3.3 million for the year ended February 29, 2016 primarily consisted of $3.4 million of capital expenditures partially offset by $0.1 million of cash distributed from investments.

Financing Activities

Cash used in financing activities for the year ended February 28, 2018 primarily relates to net payments on our long-term debt of $79.1 million, distributions to noncontrolling interests of $4.9 million, debt-related costs of $1.6 million and the settlement of tax withholding obligations of $0.4 million.

Cash used in financing activities for the year ended February 28, 2017 primarily relates to net payments on our long-term debt of $34.6 million, distributions to noncontrolling interests of $5.6 million, and the settlement of tax withholding obligations of $0.5 million.

Cash used in financing activities for the year ended February 29, 2016 primarily relates to net payments on our long-term debt of $13.2 million, distributions to noncontrolling interests of $5.8 million, debt-related costs of $1.1 million and the settlement of tax withholding obligations of $1.0 million.

As of February 28, 2018, Emmis had $78.5 million of borrowings under the 2014 Credit Agreement ($9.5 million current and $69.0 million long-term) and $63.9 million of non-recourse debt ($6.6 million current and $57.3 million long-term). Borrowings under the 2014 Credit Agreement bear interest, at our option, at a rate equal to the Eurodollar rate or an alternative Base Rate plus a margin. The non-recourse debt bears interest ranging from 5.0% to 6.0% per annum. As of February 28, 2018, our weighted average borrowing rate under our 2014 Credit Agreement was approximately 8.7%.

Subsequent to the April 30, 2018 sales our St. Louis radio stations, the debt service requirements of Emmis over the next twelve-month period are expected to be $3.0 million related to our 2014 Credit Agreement, as amended, ($0.5 million of principal repayments and $2.5 million of interest payments) and $8.7 million related to our 98.7FM non-recourse debt ($6.6 million of principal repayments and $2.1 million of interest payments). Digonex non-recourse debt ($6.2 million face amount, $6.0 million carrying amount as of February 28, 2018) is due in December 2020. NextRadio non-recourse debt of $4.0 million is due in December 2021. The Company expects that proceeds from the 98.7FM LMA will be sufficient to pay all debt service related to the 98.7FM non-recourse debt. The 2014 Credit Agreement debt bears interest at variable rates. The Company estimated interest payments for the 2014 Credit Agreement above by using the amounts outstanding as of February 28, 2018 and the weighted average interest rate as of the same date.

As of May 4, 2018, we had $20.0 million available for additional borrowing under our credit facility. Availability under the credit facility depends upon our continued compliance with certain operating covenants and financial ratios. Emmis was in compliance with these covenants as of February 28, 2018. As part of our business strategy, we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, Emmis Operating Company’s credit facility substantially limits our ability to make acquisitions. We also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so. See Note 7 to our consolidated financial statements for a discussion of dispositions that occurred during the three years ended February 2018.

INTANGIBLES

As of February 28, 2018, approximately 74% of our total assets consisted of FCC licenses and goodwill, the value of which depends significantly upon the operational results of our businesses. In the case of our radio stations, we would not be able to operate the properties without the related FCC license for each property. FCC licenses are renewed every eight years; consequently, we continually monitor the activities of our stations for compliance with regulatory requirements. Historically, all of our FCC licenses have been renewed (or a waiver has been granted pending renewal) at the end of their respective eight-year periods, and we expect that all of our FCC licenses will continue to be renewed in the future.

SEASONALITY

Our results of operations are usually subject to seasonal fluctuations, which result in higher second and third quarter revenues and operating income. For our radio operations, this seasonality is due to the younger demographic composition of many of our stations. Advertisers increase spending during the summer months to target these listeners. In addition, advertisers generally increase spending during the months of October and November, which are part of our third quarter, in anticipation of the holiday season.

INFLATION

The impact of inflation on operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on operating results, particularly since our senior bank debt is comprised entirely of variable-rate debt.

OFF-BALANCE SHEET FINANCINGS AND LIABILITIES

Other than lease commitments, legal contingencies incurred in the normal course of business, contractual commitments to purchase goods and services and employment contracts for key employees, all of which are discussed in Note 11 to the consolidated financial statements, the Company does not have any material off-balance sheet financings or liabilities. The Company does not have any majority-owned and controlled subsidiaries that are not included in the consolidated financial statements, nor does the Company have any interests in or relationships with any “special-purpose entities” that are not reflected in the consolidated financial statements or disclosed in the Notes to Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, we are not required to provide this information.

To the Shareholders and Board of Directors of Emmis Communications Corporation and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Emmis Communications Corporation and Subsidiaries (the Company) as of February 28, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), changes in equity (deficit), and cash flows for each of the three years in the period ended February 28, 2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 28, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended February 28, 2018, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.